Beacon India Private Equity, the Mumbai-based growth capital private equity firm, is on road to raise its second fund with a targeted corpus of $250 million. The private equity firm is targeting its first close of the fund at around $60-75 million by the end of the year, a top executive of the firm has told VCCircle.
“We have already identified anchor investors for our second fund,” said Deepak Shahdadpuri, founder and managing director, BCP Advisors Pvt Ltd, the advisory firm that is managing the current two funds – the Beacon India Private Equity Fund and Beacon India Alpha Equity Fund. Beacon is sponsored by Baer Capital Partners, an investment advisory firm with offices in Dubai, London, Mumbai and Zurich.
The second fund comes five years after their first offering – Beacon India Private Equity Fund, a mid-market growth capital fund of $200 million, which has made 10 investments till date – primarily across consumer, financial services and infrastructure services sectors.
Strategy, Deal-Making & Fundraising Environment
The private equity firm will stick to its strategy of buying minority positions in high-growth companies across sectors, the executive said. While the firm sees deal-making opportunities across all sectors, the fund manager is most bullish on consumption-led businesses, including food & beverage, hospitality & healthcare, banking & financial services and infrastructure services. This time, however, the fund will increase its ticket size marginally to $20-25 million from $15-20 million a pop it has been making out of its first fund.
According to Shahdadpuri, one of the key differentiating factors for their firm is that all deals have been proprietary, while the Indian PE market is one of the most intermediated markets globally. One needs strong relationships in local market to generate proprietary deals.
Shahdadpuri, through his earlier fund, GEM India Advisors, has been the first institutional investor in Nashik Vintners (which runs Sula Vineyards) way back in 2005. GEM India Adviors picked up 30-35 per cent stake in the firm for Rs 15 crore in early 2005. Recently, Verlinvest SA, a fund created by the three founding families of the beer conglomerate Anheuser-Busch InBev, picked up stake in Nashik Vintners for $15 million.
They also have a very cautious and selective approach in picking companies. “We are not the right investor for most companies. We are the right investor for only select companies,” adds Shahdadpuri.
The PE fund has also made some co-investments. It recently participated in the fundraising of Ratnakar Bank, a mid-market regional bank which raised Rs 720 crore from India’s largest mortgage lender HDFC Ltd and a consortium of private equity investors including Norwest Venture Partners, Beacon India Private Equity Fund, Cartica Capital, Faering Capital, Gaja Capital Partners and Samara Capital, among others.
The PE firm also recently participated in a ‘platform play’ type of investing. Beacon India Private Equity, along with Goldman Sachs Group, Ashmore and Everstone Capital, set up a non-banking finance company Indostar Capital Finance Ltd as a greenfield start-up.
With valuations expectations mismatch still being a huge impediment to deal-making, PE firms are increasingly looking at platform play or funding greenfield start-ups. “We see ourselves very selectively doing more deals like Indostar,” adds Shahdadpuri.
The private equity firm is still sitting on a dry powder (yet to be invested capital) of some $40 million, which is expected to be deployed in the coming months across two deals.
Liquidity Trickling In
Although the fund is still in investment mode, Beacon has made a partial exit in A2Z Maintenance & Engineering Services Ltd, a Delhi-based diversified infrastructure solutions company, with a gain of 3.1x and also returned some cash back to its LPs, Shahdadpuri said.
From his last fund, GEM India Advisors, Shahdadpuri has had part exits from two deals – Cleartip and Nashik Vintners, in the last nine months. “We have made very attractive cash realisations from these exits, thus validating the strategy of doing proprietary deals,” he adds, without revealing the multiples or exact realisations.
According to Shahdadpuri, exits will be a combination of public market sales during or post an IPO or trade sales, and this will largely be driven by the size of the business. Shahdadpuri argues that for companies which are not able to achieve a market capitalisation of at least Rs 1,500 crore, a trade sale will be the preferred exit. “You want to have a reasonable market capitalisation post-IPO of at least Rs 1,500 crore to ensure that you have high quality institutional analyst coverage and are attractive to both domestic and foreign investors.”
From the current portfolio, he is of the view that the Vatika Group, a Gurgaon-focused developer, the National Stock Exchange and Ratnakar Bank have the potential of going public in the next 2-4 years. However, he anticipates that exits in three of his other portfolio companies – Saffron Art (an art auction and sales company), Impresario (a food services business) and Bhayana Builders (a civil construction company) are likely to be via a trade sale.
Even though there is appetite for India at a broad and macro level, it is not easy being on the road to raise capital, admits Shahdadpuri. “Fundraising is tough,” he affirms. The limited partners are still concerned about the regulatory and political risks while at the micro level, they are worried about the churn among senior executives, including general partners, as has been seen in funds like Sequoia Capital India and Citi Venture Capital International.
Shahdadpuri is, however, confident that their LPs will deploy more capital in India and there will also be a diversified LP base in the second fund. While the first Beacon India PE Fund saw 50 per cent of the capital coming from Switzerland, followed by the Middle East and Australia, the second fund will see more LPs coming from Asia. “We are consciously looking at Asian LPs,” said Shahdadpuri.
The firm will, however, avoid retail or HNI capital, although many Indian funds, such as ICICI Venture and TVS Capital, had raised capital from domestic HNIs, which had lately become an emerging source of capital for PE firms (the new SEBI proposals outlining minimum investment threshold of Rs 1 crore by an HNI in a fund is likely to impact the trend).
As part of the fundraising, the private equity firm is also beefing up its team as it has recently added three investment professionals. It has roped in Akash Jain as a senior vice-president from the ICICI Venture Funds Management, one of the country’s largest private equity firms. Jain has over four years of investing experience at the ICICI and prior to that, an additional four years of corporate finance experience at the ICICI Bank and Edelweiss Capital.
Other hires include Arjun Balan who joins as an associate. Till recently, Balan was an Internet entrepreneur, having founded Yuva Web Services – a business focused on affordable fashion for the Indian youth. Prior to this, he worked with Bain & Co in Boston and Delhi, on projects in the healthcare, financial services, telecom and infrastructure sectors. Another associate Chinmay Jhaveri joins the firm from Ernst & Young where he was a senior associate in the investment banking team, dealing with structured finance and restructuring projects.
Additionally, the firm is also looking at two new people – one senior hire for the position of director or managing director and at least one at the associate or vice-president level.
However, the PE firm will also witness a departure. Director Anshuman Goenka will be moving on to join a commercial bank shortly. Goenka was one of six members of the execution team in India. The private equity firm is currently led by the four founding partners – Alok Sama, Brij Raj Singh, Deepak Shahdadpuri and Michael Baer.
Alok Sama said, “Over the last four years, we have invested $130 million in 10 businesses and most importantly, we have delivered on our strategy of doing mainly proprietary, non-auction deals. We have a strong preference to work with management teams, promoters and shareholders with whom we have worked before and that has paid off.”
Beacon joins scores of others Indian funds (an estimated 120 PE funds are seeking to raise approximately $34 billion in 2011) who are currently on the road. Some of the funds who have recently completed the fundraising are Everstone Capital Partners, which closed its second fund at $550 million, and CX Partners which did a final close at $515 million.