Private equity India: what control investors want from mid-market firms

For much of the last decade, EY observes, India was viewed primarily as a growth equity market. That is changing. EY reports that buyouts accounted for 25% of total PE/VC investment by value and 5% of deal volume over 2016-2025, and that buyout investments have included 239 large deals above US$100 million. Buyouts are a minority of volume but a substantial share of capital, and a growing part of how sponsors describe their strategy.

Deloitte's 2026 India almanac records buyout deal values rising from INR 364B in 2016 to INR 1,380B in 2025, with buyout value growing nearly four times over ten years. In 2025, it reports, buyout volumes declined by 8% while deal value rose by 23%. Fewer, larger transactions are driving value, which is the pattern one would expect when sponsors become more selective.

The picture is not uniform, because the data providers measure differently. Bain and the Indian Venture and Alternate Capital Association (IVCA) report that total PE-VC investment fell about 17% in 2025 to US$36 billion, and that overall buyout deal value declined about 55% over 2024-25. Deloitte and Bain move in different directions on 2025 buyouts. We do not try to reconcile them here; the practical point is that sponsors are active, selective and pricing carefully.

Wider M&A conditions are supportive. Bain, as reported by IANS, says India's strategic M&A deal value rose 42% year on year to US$113 billion in 2025. A strategic acquirer is both a competitor to a sponsor at entry and a likely buyer at exit.

The macro backdrop supports activity. The International Monetary Fund has raised India's GDP growth forecast to 7 per cent for 2026-27, up from 6.4 per cent in July, according to All India Radio's report of the October 2026 revision. Strong domestic demand improves the earnings outlook of Indian mid-market companies and the confidence of sponsors who must commit capital for several years. It also raises expectations for valuations, which promoters should test against sector multiples and the quality of their own numbers.

For a promoter, the main lesson from the data is that a sponsor's appetite cannot be assumed from the previous year's headlines. Totals moved sharply in both directions in 2025, depending on the source, and the composition of deals changed more than the totals. Preparing a business to be attractive in several market conditions is more robust than timing a single peak, and it keeps the promoter's options open if conditions turn.

What to do: if you are a promoter, treat a sponsor approach as one option among several. Ask your advisers to map strategic buyers, secondary sponsors and listing options in parallel, so that a control sale to private equity is a choice made against alternatives, not the default.

Bain and IVCA report that sub-$100 million deals made up about 70% of PE volumes in 2025, against about 50% in 2024, and that average deal value declined about 25% year on year. Large cheques became rarer while smaller transactions grew. A promoter running a business with revenue in the low to mid hundreds of crores of rupees is therefore in the part of the market where sponsors are most active.

Mid-market control transactions differ from large buyouts. Sponsors accept lower deal sizes in return for operational influence, and often plan to professionalise the company, add acquisitions and prepare an exit to a larger sponsor or strategic buyer. This logic favours businesses with a clear growth lever that capital and governance can unlock, such as new geographies, channel expansion or consolidation of a fragmented sector.

Buyers also value optionality. EY notes that technology and tech-enabled services benefit from platform scalability and global demand, financial services offer recurring revenues and multiple exit avenues, and healthcare and pharmaceuticals provide resilience, cash-flow visibility and long-term demand drivers. These descriptions of sponsor preferences explain why mid-market processes in those sectors attract more bidders.

The trend in ticket size matters for both sides. Deloitte data reported by Kotak Neo show that the rise in 2025 deal value on lower volume pushed average buyout deal size up by 34%, a figure that contrasts with Bain's finding that average PE deal value fell about 25%. These can both be consistent if they cover different universes: the Bain figure is stated for PE deals generally, while the Deloitte figure is reported for buyouts. Promoters should ask any adviser which universe a statistic describes before using it in negotiation.

One implication is that valuation anchors should come from comparable mid-market transactions, not from headline deals. Large transactions attract press attention, but with sub-$100 million deals now the bulk of PE volume, the relevant comparables are smaller businesses with similar growth and margin profiles. Ask advisers for a list of recent transactions of comparable size and sector, with the multiples and the structure used, including earn-outs and deferred payments. A headline multiple that depends on deferred consideration is worth less than one paid at completion.

What to do: define the problem that sponsor capital would solve before opening discussions. A succession plan, a consolidation strategy and a technology investment are different mandates, and each attracts different sponsors. State the thesis in one page, with the numbers that support it, and use it to screen out sponsors whose approach does not fit.

Deloitte's 2025 sector data shows sharp divergence. In financial services, deal volume fell by 15% but the total invested increased by 30%. In consumer, deal volume rose 4% while capital allocation rose 159%. In technology, media and telecom (TMT), volume rose 38% and capital allocation 91%. In industrials, deal volume fell by 62% and value by 42%, and in transport and logistics a 167% increase in volume came with a 47% fall in investment value.

Read together, the figures suggest that sponsors are concentrating capital in consumer and digital businesses and writing smaller cheques in industrials and logistics, where volume rose but value did not. For a promoter, sector sentiment affects pricing and the number of bidders as much as company performance does. A strong industrial business may have to explain why it deserves a premium in a sector where sponsors are investing less per deal.

EY's pure-play buyout data adds the long view. Since 2016, pure-play technology buyouts attracted US$24.9 billion across 48 transactions, financial services US$9.6 billion across 43, pharmaceuticals US$5.9 billion across 32 and healthcare US$5.4 billion across 33. These are totals for a decade, but they show where sponsors have repeatedly taken control and where exits may be available to the next buyer.

EY data reported by Kotak Neo give a longer-run view of buyouts. Average annual buyout investment rose 52% to $14.2 billion in 2021-2025 from $9.3 billion in the previous five years, and the average number of buyout transactions rose to 56 from 43, a 30% increase. A Deloitte South Asia PE leader writes that control deals in India have grown fourfold since 2010. Short-term volatility is real, but the structural direction is towards more control transactions.

What to do: place the business within the sector map before choosing a timetable. If your sector is out of favour, consider delaying a sale while strengthening the case, or widen the buyer list to strategic acquirers. If it is in favour, a faster process may capture the premium. Do not assume that sentiment will hold: Deloitte's industrials and logistics figures show how quickly it can turn.

EY records that promoters are seeking solutions for succession, balance sheet simplification and reduced exposure to business volatility. Those motives shape the type of transaction: a partial sale with the promoter retaining a significant stake, a full sale with a transition period, or a structured arrangement with deferred consideration. Clarity about the real objective is the starting point, since sponsors read hesitation as a negotiation weakness.

Bain and IVCA report that carve-outs from Indian conglomerates and control deals in family-owned businesses continue to account for 40%-45% of PE buyout deal volume. Family-owned and conglomerate-owned businesses are therefore the core of the control market. They also carry the issues sponsors scrutinise most: related-party transactions, shared services with the parent, informal accounting practices and decision-making that depends on one individual.

Institutional governance is therefore the main variable a promoter can change. Sponsors will examine the quality of financial reporting, the independence and function of the board, the separation of family and company finances, tax compliance, management depth and the documentation of key contracts. Each gap becomes a price adjustment, an indemnity, a closing condition or a reason to withdraw. Each fixed gap removes one of those frictions before the process starts.

Sponsors will also test whether the promoter's influence on the business is a strength or a dependency. Customer relationships held personally by the founder, pricing decisions made informally, and suppliers who deal only with the family are risks because they may not survive a change in ownership. Documenting these relationships, introducing the second management layer to key customers and formalising contracts reduces the dependency, and is often the single most valuable preparation step in a mid-market sale.

Family governance deserves its own workstream. Where several family members hold shares, sponsors want to know who speaks for the family, how disputes are resolved and what happens if a member wishes to sell. A shareholders' agreement within the family, a family council or a documented decision process may seem outside the transaction, but a buyer cannot close with a counterparty that cannot make a decision. Resolving internal differences before approaching a sponsor shortens the process and signals reliability.

What to do: commission an independent vendor review of the business as a buyer would see it. List issues by cost to fix and by value effect, then remediate the cheap ones first: related-party contracts at arm's length, a monthly management reporting pack, board committees with outside members and an audit trail for key decisions. Keep the record, because a buyer will ask for evidence that changes were real and lasting.

A control investment does not always mean a majority of shares. Sponsors obtain control through board majority, reserved matters covering budget, borrowing, senior hires and acquisitions, and exit rights including drag-along and a right to initiate a sale after a set period. Promoters who retain a significant minority can still shape the company, if the governance document gives them defined rights on matters such as brand, family employment and legacy commitments.

Pricing and structure are separate negotiations. A headline valuation can be supported by deferred consideration, earn-outs tied to performance or rollover of the promoter's equity. Each tool shifts risk from buyer to seller, so the promoter should understand how earn-out metrics are defined and who controls the decisions that affect them. Disputes over earn-outs arise when the new controlling shareholder changes strategy, accounting policy or pricing.

Cross-border sponsors face foreign investment and exchange control rules that affect structure, pricing and exit rights. Indian counsel should advise on the sector route, valuation requirements and any approval timelines before the term sheet is finalised. Where the target is listed, takeover regulations and disclosure obligations add a further layer. These are matters for qualified lawyers; the commercial task is to understand how they shape the options.

Sponsor and promoter incentives need to be aligned over the holding period. A management incentive plan that gives the executive team a meaningful share of value creation, subject to performance conditions, helps retain talent and aligns decisions with the exit. Promoters should understand how any ratchet or performance-linked adjustment would operate, because it can change their effective share of proceeds. A short worked example, using realistic scenarios, is a better test of the terms than a verbal description.

Warranties and indemnities are the other point of friction. Sponsors typically ask promoters to stand behind the accuracy of the information provided, sometimes with escrow or a retention from proceeds, and ask for specific indemnities on known issues such as tax or litigation. The cleaner the diligence record, the less the buyer needs to hold back. A promoter who can show that issues were found and fixed before the process begins negotiates these clauses from a stronger position.

What to do: agree on the control package in principle before negotiating price. Ask what the sponsor needs to feel in control, and what you need to feel respected, then draft a reserved matters list that meets both. Include a clear process for resolving disagreements between the promoter and sponsor, because the relationship will last as long as the investment, which is usually several years.

Sponsors price an investment by the exit they expect. Bain and IVCA report that PE-VC exits rose about 3% over 2024-25 to about US$34 billion, but that public-market exits declined about 28% to about US$14 billion from about US$20 billion in 2024. A weaker listing market pushes sponsors towards trade sales and secondary transactions, which changes the profile of businesses they want to buy.

Deloitte records that the number of exits fell by 53% from 2024 while total exit value declined by just 15%, so fewer exits are producing larger values. EY reports that 84% of buyout exit value, US$48.3 billion, was realised during 2021-2025, and that secondary exits were the largest share at 39%, or US$22.5 billion. Secondary sales to another sponsor are common, which means the business must be attractive to a second round of institutional capital.

For a promoter, this has two implications. First, the sponsor will ask who the next buyer is, and will expect the company to be prepared for that process from day one, with audited accounts, a management team and reporting systems that outlast the founder. Second, if the promoter retains a stake, their exit comes with the sponsor's, so a promoter should check that the proposed timeline and drag-along terms suit their own objectives.

Timing within the cycle is not controllable, but readiness is. Bain's finding that public-market exits fell about 28% in 2025 suggests that sponsors are keeping a closer eye on trade sale routes. A business that can credibly be sold to a strategic acquirer, or to another sponsor, is less exposed to the state of the listing market. That is part of what a control investor pays for, and it is a reason to prepare the company for a range of possible next owners.

Secondary buyers have their own requirements. A second sponsor will expect the company to have used the first sponsor's investment to improve reporting, build management and extend its market position. That means the promoter who rolls over equity into a sponsor-backed vehicle takes part in a second sale and a second set of negotiations. Reading how earlier exits by the sponsor went, and whether management was well treated, is part of choosing a partner as well as a buyer.

What to do: ask any prospective sponsor to describe its last three exits, how they were achieved and how long they took. Probe its approach to holding periods and to follow-on funding. A sponsor that has exited successfully through trade sales to strategic buyers may be a better partner for a business with strategic appeal than one that relies mainly on listings.

Preparation begins about a year before any process. The first quarter should establish an accurate view: audited financial statements with a clean opinion, a normalised EBITDA bridge that a buyer can follow, and a schedule of related-party transactions. The second quarter should fix the findings: contracts, tax positions, key-person risks and compliance gaps. The third should build the management layer and reporting calendar. The fourth should prepare the sales materials.

Governance work should be visible. Appoint independent directors with real experience, create an audit committee and hold board meetings with minutes and decisions. Where the family's role in management is significant, set out a documented succession and compensation framework. These steps signal that the company can function independently of the promoter, which is the central question in any control sale.

Advisers should be chosen early. A promoter will need legal counsel with transaction and foreign investment experience, accountants who can produce a quality-of-earnings review and, for processes involving regulated activity, appropriately authorised financial advisers. Karter McKinley supports the preparation and process management, but does not replace regulated advice.

Finally, remember that the process itself is a test. Bidders observe how a promoter responds to requests, how quickly information arrives and how consistent the numbers are. A disciplined process, with a clear timetable, a single point of contact and consistent answers, improves confidence. A chaotic one invites a lower price and more conditions. Treat the preparation period as a rehearsal, and use it to find the weak points in the story before a sponsor does.

What to do: set a date, twelve months ahead, at which you would be willing to open the data room, and work back from it. Review progress every quarter against four measures: reporting timeliness, number of unresolved diligence issues, management depth and the number of qualified buyers on the long list. If the measures do not improve, postpone the sale rather than accept a discount for fixable problems.

Karter McKinley's M&A and Corporate Development support helps promoters and CEOs prepare for a control transaction: a buyer's-eye diagnostic, an institutionalisation plan, buyer mapping, data room preparation and process coordination. We work alongside qualified lawyers, accountants and FCA-authorised or locally regulated advisers where regulated activity is involved. This is information, not investment advice, and we make no promises about outcomes.