Private equity firm WestBridge Capital Partners is leading a $45 million investment in diagnostics and pathology services firm Dr Lal PathLabs, buying out the existing stake held by its first fund. Along with TA Associates, WestBridge Crossover Fund has bought out the entire stake held by WestBridge Ventures I, which invested in Gurgaon-headquartered firm in two tranches in 2005 and 2007.
While WestBridge Crossover Fund invested $36 million in the transaction, the remaining $9 million was invested by TA Associates.
The deal is the first investment in a privately held company by WestBridge Crossover Fund and the largest investment in the healthcare services sector in 2013 till date. WestBridge Crossover Fund, which raised $500 million in 2011, has now deployed around 50 per cent of its corpus across 12 investment in listed companies (except Dr Lal Pathlabs).
"Healthcare is of strong interest to us and we have been investors in Dr Lal Pathlabs from 2005. It can be seen from the quantum of fresh capital we are committing that we are bullish on the company and taking a long term view," said Sandeep Singhal, co-founder of WestBridge, who also sits on the board of Dr Lal Pathlabs.
According to VCCEdge, WestBridge Ventures I paid $9.6 million for 26 per cent in Dr Lal Pathlabs in 2005 followed with another 6 per cent for $4.3 million in 2007. Westbridge Ventures I sold half of its stake to TA Associates in 2010 for $35 million and has sold the remaining stake now.
According to one source familiar with the development, Dr Lal Pathlabs was valued at approximately $300 million in this transaction. When WestBridge first invested in Dr Lal Pathlabs it had revenues of Rs 40 crore, which is expected to touch Rs 450 crore in FY13.
According to CRISIL, Dr Lal Pathlabs generated profits of Rs 46 crore on net sales of Rs 350 crore for FY12 as compared to profits of Rs 29.7 crore on net sales of Rs 240 crore for FY11. The company has a network of 125 labs across the country.
"We believe that although there is a lot of demand and growth potential in the healthcare sector, generally not all segments are financially attractive. It is very tough to build and scale businesses and not many have created companies that financially attractive," added Singhal.
Most PE firms have been in investing in diagnostic chains, eyecare providers and day care surgery chains. Private equity deals in healthcare services and medical equipment space reached a record high in 2012 as investors look at a large, recession-proof market with minimal regulatory intervention. According to VCCEdge, the data research platform of VCCircle, there were 35 private equity investments in healthcare services and equipment companies in 2012, worth $841 million.
In 2013, there have been eight deals worth $80 million till date, according to VCCEdge.
(Edited by Prem Udayabhanu)