SIIA raising $150 million for its next agribusiness fund
The firm expects international investors to put in $100 million, and the rest is to be raised from Indian investors
SEAF India Investment Advisors (SIIA) is raising $150 million for its next agribusiness fund from international and domestic investors.
The fund is sponsored by the Washington, DC-based Small Enterprise Assistance Funds (SEAF).
The firm expects international investors to put in $100 million, and the rest is to be raised from Indian investors.
It will be a successor to the existing SEAF India Agribusiness Fund and SEAF India Agribusiness International Fund, said managing director Hemendra Mathur in a phone interview.
The two existing funds were established five years ago, with a total capital of $42 million. One of them is domiciled in Mauritius, and invests through the foreign direct investment (FDI) route.
Both funds invest in parallel food and agricultural businesses, such as food ingredients, seeds, processing, warehousing and restaurants.
Most of these businesses are family-owned and based out of smaller Indian cities.
The size of the food and agribusiness market in India is estimated at $375 billion, out of which food makes up $300 billion.
The rest includes agricultural inputs such as seeds and fertilizers, non-edible products such as farming equipment, and crops like cotton and jute.
Mathur expects at least $500 million worth of deals this year in this space.
SIIA has so far invested in eight firms in India, and talks are on with a ninth company. SIIA has also invested in a restaurant chain, Guha Roy Foods, in Kolkata, its only investment in a front-end company.
“There are a lot of opportunities in the agribusiness space, to add value by improving efficiencies and exports. These are largely untapped," said Mathur, adding that this is a good time to invest as this fragmented segment of the economy becomes more organized.
The fund has not exited any of its investments, the oldest of which is four-and-a-half years old.
“We plan on one exit, if not two, in the next six months," said Mathur.
The firm plans to increase the quantum of investment per transaction to $5-10 million for the new fund, as compared with $2-5 million for existing ones.
Mathur said that valuations are expensive for restaurants, at about 15-30 times Ebitda (earnings before interest, taxes, depreciation and amortization—a measure of operating profit), way more than the enterprise value of 5-10 times Ebitda for the food supply chain businesses.
Convincing businesses, especially profitable family-owned ones, to accept outside investment has not been easy.
“Typical courtship periods are six to 18 months. It is longer for cash-rich companies, which can easily raise debt," said Mathur.
Such businesses need proof that SIIA can add value to their operations.
“We typically bring down the cost of their debt, which convinces them. We also pitch to the sons and daughters of the owner, who are usually better travelled, educated abroad and are more amenable to the investment," added Mathur.
This story was first published on Dealstreetasia.com.
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