Mumbai-based Sage Capital Funds Management, a growth capital-focused private equity firm, is currently evaluating two transactions and expects to close one deal shortly, said Manish Kanchan, managing director and founder of Sage Capital. Incidentally, his firm is now looking at deals in the pharmaceutical and IT-enabled space.
Sage Capital, which manages $90 million, is a sector-agnostic fund that looks to invest $10-$20 million in mid-market companies for a minority stake. In an interview with VCCircle, Kanchan said that they would be looking at opportunities in IT-enabled segments like smart cards and UIDAI-related areas (Unique Identification Authority of India), in addition to pharmaceuticals and the fast-growing mining ancillary space.
“This is a good time to invest since debt is not cheaply available and the capital markets are not easily accessible,” Kanchan added. While the world has been in a recessionary environment since 2008, Kanchan expects the uncertainty to die down in a year and feels that 2013 and 2014 will be great years for the economy and the capital markets.
The private equity firm is currently investing out of Sage NPE Fund 1 and has completed four investments since 2009. Among other institutional investors, the PE arm of the French investment banking and asset management major Natixis acts as the fund’s lead sponsor. Sage has currently invested 50 per cent of Sage NPE Fund 1 and will look at a new fund next year after deploying the remaining corpus, detailed Kanchan.
Kanchan, who was earlier the partner and CEO of the investment bank Ambit Capital, said that in 2008, Sage Capital had initially focused on breakout events and special situations, but that strategy did not work out. Therefore, the PE firm has focused upon expansion capital deals since the last two years.
Sage Capital has invested $20 million in John Energy Ltd (an oil-drilling firm backed by Rakesh Jhunjhunwala), $15 million in Power Engineering India (manufacturer of diesel generator sets) and $10 million combined in Concord Enviro Systems (waste water treatment) and its sister concern Rochem Green Energy (it converts municipal waste to energy).
According to Kanchan, while PE deal-making remains a prolific market, valuations still remain a challenge. Sage Capital, which invests in companies with revenues ranging between Rs 100 crore and Rs 300 crore, also thinks that high competition and lack of talent are some of the key issues in this respect.
“There is a lack of competitive business models here in India. In various businesses that we come across, entry barriers are low, pressure on pricing is high and customer acquisition costs are high,” said Kanchan. “Another problem is the lack of qualified and talented people. Only they can help a company achieve its growth plans. We have seen all these in the businesses we have invested in and also in the deal pipeline.”