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Home / Companies / News /  o3 Capital is raising a $150 million fund focused on hospitality

Mid-market boutique investment banking firm o3 Capital is raising a $150 million hospitality-focused fund, as the Mumbai-based company looks to diversify into the asset management business, a top executive of the firm said.

“The idea is to raise a $120-150 million fund that will be investing in hospitality businesses, largely acting as last-mile funding. We will be specifically looking at near-complete assets needing last-mile funding to become operational," said Deepesh Garg, managing director at o3 Capital Global Advisory Pvt. Ltd, adding that the firm sees a huge opportunity in the space.

With the addition of a hospitality fund, o3 is building its business along two lines—investment banking advisory services and asset management. The firm closed 18 transactions on the advisory side last year, including fund-raising for firms such as Cremica (Mrs. Bectors Food Specialities Ltd), Barbeque Nation Hospitality Ltd and the Hyderabad-based Asian Institute of Gastroenterology.

o3 was founded in 2007 by Shyam Shenthar, Garg, Shiraz Bugwadia and T.R. Srinivas. Shenthar, CEO and managing director at o3 Capital, previously worked with Avendus Capital. Garg and Bugwadia, managing directors at o3, also worked with Avendus. Srinivas, also a managing director, was previously associated with TAIB Bank.

The company entered the asset management space last year when it raised a $10 million early-stage fund called Uniqorn Venture Fund that was registered with the Securities and Exchange Board of India in July. Of the $10 million corpus, around 45% has already been deployed. Uniqorn has invested in start-ups such as Chillr, Bewakoof and VelvetCase.

According to Garg, the move to expand into the asset management business complements the strengths of the firm on the advisory side. “Through the investment banking business, we have a deep understanding of a few spaces, and we understand which assets can give good returns. So, the idea was to use this understanding to create a business which is longer-term in nature, unlike advisory, which is more transactional," he said.

Within asset management, the firm is seeking to invest in spaces where it sees a clear opportunity to make superior returns.

“The hospitality fund thesis is that there is a very specific opportunity available, where there are a lot of these assets available where you can run them better or put that last-mile funding to make more returns out of the asset," Garg said.

The thought process behind the early-stage fund Uniqorn was also similar, wherein, through its advisory business, the firm saw several high-quality business being created in the start-up ecosystem.

“In most of our deals as advisors, we have got involved early and then done multiple fund-raising rounds for the business. We thought if we get involved early in such businesses, then there is an opportunity to make decent returns," said Garg.

The asset management side of the business is being overseen by Shenthar and Bugwadia. Garg and Srinivas oversee the investment banking side. Garg says the two businesses don’t overlap.

o3’s expansion into asset management comes at a time when other mid-market investment banking firms have been adding more business lines.

KKR-backed Avendus plans to launch a non-banking financial company that will focus on structured lending. The Mumbai-based investment bank also has other businesses such as wealth management and asset management. Another Mumbai-based mid-market boutique investment bank, Equirus Capital, plans to start portfolio management services and wealth management businesses.

o3 Capital’s hospitality fund is currently going through the regulatory approval phase. The firm has already roped in anchor investors. “We have the anchor investors in place for this fund and we have brought on board a person who will be the CIO (chief investment officer) for the fund. We have good visibility on our first close. The moment we get our approvals we will start investing from the fund," Garg said.

The first close of the fund is expected in the next four months. It will be looking at investing in hotels at the premium end of the market.

“The portfolio will be a mix of destination-based tourist properties as well as business hotels in tier I cities. We will be picking up minority equity positions with ticket sizes of around $10-20 million," he said, adding that the firm already has a couple of discussions in place.

The hospitality fund, in addition to acquiring minority stakes, will also be acquiring the management rights for assets.

o3 has signed an exclusive contract with a hospitality firm to use its brand. Garg declined to disclose the name of the firm. It is one of the anchor investors in the fund, he said.

“On the hospitality side, there is a decent turnaround that is happening in the sector, though our strategy is not so much linked to the sector (performance) in the short term. We will be going very asset-specific, trying to see that you have very good cash flow visibility from the asset. Our returns will be linked to how well we can sweat the asset," said Garg, adding that the fund will be targeting returns in the mid-20s.

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