India Life Sciences Fund II raises Rs 865 crore in second fund
The oversubscription of India Life Sciences Fund II shows that investors are open to funds offering focused expertise in certain key industries.
India Life Sciences Fund II, a private equity fund focused on Indian mid-market companies in healthcare services, pharmaceuticals and medical technology space, has raised Rs 865 crore in its second fund, against a target of Rs 750 crore.
The corpus has been raised from seven large institutional investors — known as LPs, or limited partners, in private equity parlance — including an unnamed US-based asset manager that has $4 trillion in under management and a 300-year-old European company.
“Fundraising was not a walk in the park,” said Hari Buggana, MD at Hyderabad-based InvAscent, investment advisor to India Life Sciences Fund II. “Focus of LPs was not only on the investments and returns generated from exits, but also on value addition in terms of specific actions by the team,” he said.
This shows that niche approach with ample expertise in key industries may be the currency to success for PE players at a time when a mix of factors, including poor returns from previous investments and macroeconomic slowdown, has made LPs extremely circumspect about committing their money.
Total private equity and venture capital fundraising slipped to $2.25 billion across 26 funds in 2013 from $3.88 billion raised by 34 funds in 2012, according to EY data.
While the overall investment sentiment has improved in recent months, LPs believe certain sector can give disproportionate returns.
“Focused strategies in a few verticals like healthcare, technology and even consumer discretionary are interesting,” said Anand Prasanna, MD at Morgan Creek Capital, which has backed Indian funds like CX Partners and Kae Capital. “When I look at performance of S&P 500 over last 60 years, these are certain sectors which have outperformed due to various reasons and there is a lot of similar tail-wind for them in countries like India and China.”
LPs also respect funds with specialised teams with their experience in an industry.
Vikram Utamsingh, India co-head at Alvarez & Marsal, which advises private equity and venture capital funds, said, “Teams that have over a period of time developed specific sector focus will have a better ability to assess transactions in their chosen sectors and reduce the margin of risk on returns.”
Consulting firm Bain & Co's 2014 India Private Equity Report said, “LPs consider PE funds’ team quality and industry focused operational expertise as most critical when allocating funds. As a result, GPs are trying to differentiate most on industry expertise and credibility.”
India's healthcare space has several focused funds like Piramal's India Venture Advisors, Burman's Asian Healthcare Fund, Religare-backed Quadria Capital and Somerset Indus Capital Fund. There are also PE funds focused on segments like education (Kaizen PE) and food & agriculture (Rabo Equity Advisors, SEAF India and Omnivore Partners).
While most these PEs still invest from their maiden funds, it is the second fund for India Life Science II. In 2007-08, the predecessor fund had raised approximately Rs 636 crore.
Its team includes doctor-turned-investors who have worked at companies like Roche, Abbott Labs, Genomics Collaborative, Dr Reddy’s Laboratories, McKinsey and SBI Capital.
Besides its expertise in the sector what also helped the fund is building a strong exit track record, already returning 80% of the capital of its first fund through three exits in a portfolio of eight companies.
India Life Science's first fund has also exited from three investments through secondary sales to top investors like KKR, Temasek and CX Partners. It exited medical consumables maker Sutures India with over three times returns, and made over two times in cancer care network Healthcare Global. More recently it sold its stake in Gland Pharma, which makes niche cardiovascular and orthopaedic drugs, to KKR, which invested approximately Rs 1,200 crore in the Hyderabad-based company.
On raising more money than the first fund, Buggana of InvAscent said, “The size of the companies in the target universe has also increased and they can absorb much more capital.”
But India Life Sciences Fund II will continue with its strategy of buying minority stake in companies. “We feel that we can be very effective as minority shareholders and don't need to be in control to create value,” said Buggana, who has worked as a life sciences industry consultant at McKinsey and as a scientist at Abbott Labs. He said the fund will look at deals of Rs 50-100 crore.
In 2012, there were 43 PE and VC deals worth $924 million in the healthcare and pharma space, which increased to 61 transactions worth $1,034 million in 2013.