Mumbai: WestBridge Crossover Fund and private equity (PE) firm TA Associates have jointly invested $44 million in Gurgaon-headquartered diagnostics and pathology services firm Dr Lal PathLabs Pvt. Ltd . Both will hold significant minority stake in the company.
WestBridge’s contribution was $35 million in this secondary transaction, its largest investment from its two-year-old $500 million evergreen fund and its first investment in an unlisted company.
WestBridge Crossover Fund, which was raised in 2011, has invested only in listed firms till date.
“Dr Lal PathLabs is a fast-growing business. It’s the leading pathology and diagnostic chain in the country and serves millions of customers,” Sandeep Singhal, co-founder and managing director of WestBridge, said. Singhal, who has served on the board of the company since 2005, declined to give details of the transaction in terms of the valuation and stake bought.
Dr Lal PathLabs has been valued between Rs.1,500 crore and Rs.1,750 crore, compared with its valuation of Rs.100 crore when WestBridge first invested in it in 2005 as WestBridge Ventures I, said a person close to the deal, requesting anonymity.
WestBridge Ventures I was founded in 2000 and had invested in Dr Lal PathLabs in two tranches—2005 and 2007—for an undisclosed stake. In 2010, TA Associates bought nearly 16% of this stake for $35 million. In this month’s secondary round, WestBridge Crossover Fund and TA Associates acquired the remaining stake of WestBridge Ventures I.
The WestBridge team, led by Sumir Chadha, K.P. Balaraj, Sandeep Singhal and S.K. Jain, has historically backed investments in firms such as Vasan Healthcare Pvt. Ltd and Dr Lal PathLabs. “The business prospects of the healthcare industry in a medical care-starved country like ours are very high. We continue to look for opportunities that are financially attractive and have a high impact,” said Singhal.
Om Manchanda, chief executive, Dr Lal PathLabs, said the company will continue to work towards its growth trajectory of compound annual growth rate (CAGR) of 35%. “We have 125 labs already and will add 35-40 more in FY14,” he said, adding the company is exploring acquisition opportunities in Bangalore, Chennai, Hyderabad and Kolkata.
“We are looking at city-based labs in places where we are thin,” he said. The company expects to end fiscal 2013 with a turnover of Rs.450 crore.
On the issue of exit from the company, Singhal said Dr Lal PathLabs is most likely to go public in the next few years. “We are happy to take a long-term view on the business and are in no hurry to exit. For us, it’s a new start in this round,” he said.
The investment in unlisted Dr Lal PathLabs will not be an exception for WestBridge. The firm is looking for investment opportunities in consumer, healthcare, financial services and products companies.
“We are likely to invest 60-70% of our fund in the listed space, and about 30% in the unlisted segment,” said Balaraj, co-founder and managing director. He added that in their other private deals, too, the emphasis would be on strong founders and management, high return on capital, good cash flow, proven market leadership and a high growth market segment.
“We want to be shareholders in the best mid-sized companies in India,” said Sumir Chadha, co-founder and managing director, WestBridge. “Whether these opportunities are in listed entities or unlisted firms, it makes no difference to us. Most investors say they want to invest only in listed or unlisted firms. Our aspiration is to partner with the best.”
Although Westbridge has invested nearly half of the $500 million fund, it is in no hurry to raise more capital as it is an evergreen fund, where returns generated on investments are automatically ploughed back into the investment pool, Chadha said.
Experts say the strategy of making investments in listed and unlisted companies is a function of taking exposure across various asset classes. “It is on the same line as one invests in several companies across various sectors. It is also a function of what the limited partners want,” said Harish H.V., partner, India leadership team, at accounting and advisory Grant Thornton India.
Meanwhile, WestBridge executives say they are open to investing again in companies that it had backed in its earlier avatar as WestBridge Ventures I and Sequoia Capital India (with which they merged in 2006 and split in 2011).
The opportunities will, however, be treated as new ones. New deals are not about the past, they are about the future, according to S.K. Jain, co-founder and managing director of WestBridge. “If there are opportunities available in companies where we had invested in the past now and we see a long run of growth, we will consider them again. There is no constraint that we can’t,” said Jain.
Since 2011, when WestBridge raised India’s first evergreen fund worth $500 million from global investors, it has done 16 deals, investing over $250 million. Unlike traditional funds, an evergreen fund does not have an investment cycle. Instead, returns generated on investments are automatically ploughed back into the investment pool, creating a perpetual flow of capital for investments.
“Evergreen fund is a great strategy for India as there is no pressure to deploy. We are the longest-standing GP (general partner) partnership in India (14 years), which gives significant comfort to our LPs (limited partners) that our performance will remain at the top of the market,” said Balaraj.