TPG leads $100 mn investment in SME lender Five Star Business Finance
Photo Credit: Shah Junaid/VCCircle

Private equity firm TPG said on Tuesday it has led a $100 million (Rs 685 crore) investment round in Five Star Business Finance Ltd, which makes loans primarily to small and medium businesses.

Existing investors Norwest Venture Partners, an investment fund managed by Morgan Stanley and Sequoia Capital also invested in Five Star alongside TPG Capital Asia, the PE firm said in a statement.

Five Star’s first investor, Matrix Partners, continues to stay invested in the company, TPG said. It didn’t disclose additional terms of the transaction.

The announcement comes a month after VCCircle reported that Five Star had received investment offers from two PE firms, including TPG.

Five Star commenced operations in 1984, with a focus on consumer loans and vehicle finance. It shifted focus to micro, small and medium enterprises in urban and semi-urban markets in 2005.

The company provides loans to nearly 40,000 customers including single-shop retailers like vegetable vendors, provision stores, food retailers and self-employed individuals. It manages around Rs 1,220 crore in assets across more than 150 branches. The lender says it has a strong presence in the southern market, especially Tamil Nadu. It has also started operations in Madhya Pradesh and Maharashtra.

“For many years, small enterprises across India have struggled to gain access to traditional financial systems due to their inability to meet formal requirements for credit. In south India and across the country, demand for funding continues to significantly outpace supply,” said Puneet Bhatia, managing partner at TPG Capital Asia.

TPG’s investments

TPG, which was founded in 1992, has assets under management of around $84 billion globally across sectors including healthcare, financial services, manufacturing, retail and business process outsourcing.

The financial services sector is a key focus area for TPG in India and Asia.

In the non-banking segment, TPG has previously backed Janalakshmi Financial Services and Shriram Group. The target client base for both Janalakshmi and Shriram is similar to that of Five Star.

In April, TPG Capital agreed to invest in Max Financial Servicesas it sought to pursue inorganic opportunities. However, this deal was eventually called off as Max Financial dropped its acquisition plans.

Meanwhile, TPG has been active in striking deals across sectors in India in the past few months.

Earlier this month, it led a $100 million investment in Bigtree Entertainment Pvt. Ltd, which owns and operates online ticketing platform BookMyShow.

Last week, TPG Capital Asia acquired a significant minority stake in Sai Life Sciences from Tata Capital.

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