Mumbai: Domestic private equity fund Kedaara Capital has emerged as the front-runner for acquiring a minority stake in Sutures India Pvt. Ltd from the surgical equipment maker’s existing investor CX Partners, said two people familiar with the development.
The deal size is expected to be around Rs.400 crore, they said.
“They (Kedaara) are in advanced talks with CX and the deal is expected to be closed shortly,” said one of the two people mentioned above, requesting anonymity as he is not authorized to speak to the media.
On 8 April, Mint had reported that Kedaara Capital and Malaysian sovereign wealth fund Khazanah Nasional Bhd were in talks to buy a minority stake in Sutures India.
US-based private equity fund TPG Growth owns around 52% in Sutures and CX Partners holds 20% with the rest held by the promoters.
CX Partners had acquired a 37% stake in Sutures India for about Rs.200 crore in 2012 through a secondary deal where it bought out the entire stake held by India Life Sciences Fund.
CX sold a part of its stake to TPG Capital in February 2015.
The PE fund has been in talks with various funds to sell its stake in Sutures. The enterprise value of Sutures is $300 million (around Rs.2,000 crore) and investment bank o3 Capital is advising CX Partners, said the second person cited above, also requesting anonymity.
Kedaara had raised its maiden fund of $540 million in 2013. The private equity firm has so far invested in companies such as Parksons Packaging Ltd, Mahindra Logistics Ltd, Au Financiers India Ltd, Bill Forge and Manjushree Technopack, putting into action around $172 million, according to data from Venture Intelligence.
Its latest investment was the buyout of Au Housing Finance, the mortgage arm of Au Financiers, along with Swiss private equity firm Partners Group, for around $140 million, the data shows.
“As a matter of policy, CX does not comment on market speculation,” said Jayanta Basu, managing partner at CX Partners, in an email response.
Kedaara Capital declined to comment. Calls and text messages sent to a o3 Capital spokesperson went unanswered.
Emails sent to Sutures India did not elicit any response.
Founded in 1992, Bengaluru-based Sutures makes surgical and wound-closure products such as natural and synthetic, absorbable and non-absorbable sutures, surgical needles, staples, tapes, bone wax, surgical meshes, catheters and disposable surgical gloves.
Sutures, which competes with multinational firms such as Smith and Nephew Plc, Ethicon Inc. and ConvaTec in the surgical equipment segment, exports products to 91 countries in Europe, South America, Africa and Asia. It also supplies to over 10,000 hospitals across India.
TPG Growth, a growth equity fund of TPG Capital, invested in Sutures in 2013 by acquiring about a 23% stake from CX Partners and promoters of the firm for Rs.145 crore. Over time, TPG increased its stake and it now holds a majority in Sutures.
There has been a spurt in private equity exits from the healthcare sector through secondary transactions (one firm selling to another) and initial public offers (IPOs) over the past few months.
Last year saw private equity firms exit investments worth $1 billion in the healthcare sector compared with $500 million in 2014. Exit volumes also increased to 29 deals from 18 deals in 2014, according to a January Bain and Co. report, Trends in PE/VC investing in India: 2015.
In the last 12 months, several healthcare firms have gone public, creating an exit route for their private equity investors. Companies such as CX Partners and Norwest Venture Partners-backed Thyrocare Technologies Ltd, TA Associates-backed Dr Lal Pathlabs Ltd and JP Morgan and Pinebridge Investments-backed Narayana Hrudayalaya Ltd launched their IPOs in the last few months.
According to Vinayak Burman, founding partner at Mumbai-based law firm Vertices Partners, several macro factors continue to make the healthcare sector an attractive space for private equity investors.
“Rising incomes and an ageing population will see more people seeking access to healthcare, be it primary, secondary, tertiary or quaternary. Also, the gradual shift in mindset to acknowledge the essence of preventive healthcare in India will act as a catalyst for the development of the sector, making it one of the largest sectors in terms of both revenue and employment,” Burman said.
The healthcare delivery system in India requires an investment of around $245 billion, said PricewaterhouseCoopers’s January 2015 report, The Future of India: The Winning Leap. India needs to add 3.6 million beds, 3 million doctors and 6 million nurses over the next 20 years, the report said.