Mumbai: Private equity firm InvAscent is writing significantly larger cheques in pharma—its core focus—as rising regulatory and manufacturing costs have pushed companies to raise more capital.
“Our ticket sizes in pharma have increased. We now participate in $80 million-$100 million deals along with our LPs (limited partners), where we roughly do a 50-50 split. Earlier, we engaged only in $30 million-$50 million transactions,” founder and chairman Hari Buggana told Mint in an interview.
“It costs a lot more today to build a new facility to comply with the regulations, so companies naturally need to raise a lot more money.”
The firm is also widening its investment lens to sub-segments such as health-tech. "Another change that has happened as compared to the earlier funds is health-tech as a sector is now becoming an area that we are actively investing in.”
This comes on the back of increased investor interest in the pharma and healthcare sectors, driven by higher income spends, expanding healthcare coverage and growing medical tourism, creating new pockets of demand for innovation and growth from tier II and III cities.
The Hyderabad-based private equity firm is focused on three major industries – pharmaceuticals that takes about 50% of the fund, followed by healthcare (about 30%) and other related industries such as med-tech, health-tech and animal health that together constitute about 20% of the fund.
The commentary follows less than a year after the investment firm closed its fourth fund with a corpus of $304 million. By the time Fund IV is fully invested, it will likely close at $400 million with co-investments from limited partners, he said, adding that the firm has already deployed 40% of the capital from the current fund.
Its investments from the fourth fund include Apex Hospitals, ABI Health, Fleming Laboratories, Geri Care, Maiva Pharma, and SRV Hospitals.
The fourth fund also saw a third of the capital commitments come from domestic investors, marking a first for the investment firm. The remaining capital came from international LPs.
“Historically, we have always had LPs from America, Europe and Asia who have been keen to invest in the emerging market. But this time, we saw a lot of inbound enquiries from domestic investors who wanted access to good quality pharma and healthcare assets through our fund,” Buggana said, adding that its past funds have beaten all Indian equity benchmarks.
Larger funds
As certain themes evolve and ticket sizes grow, InvAscent’s fund sizes have also increased. Its previous funds were about $100 million (raised in 2007), approximately $150 million (2014), and about $300 million [2018], including co-investments.
More recently, InvAscent is increasingly seeing public markets as a prominent exit route driven by attractive valuations as many of its portfolio companies achieve sustainable scale.
“In the past, we had several exits via sale to larger private equity firms or strategics and in some cases, the promoters decided to buy back the fund's stake," he said.
Some of its past exits include Oliva Skin & Hair Clinic and Oasis Fertility to Kedaara Capital, and sale of its holding in Comprehensive Prosthetics and Orthotics (CPO) to other PE firms NorthCreek and Parkway Partners. It also sold its stake in Biorad Medisys back to the company promoters and in Stericon Pharma to Nirma Group in 2023.
"We are now seeing greater receptivity towards high-quality healthcare and pharma assets to list in the public markets,” Buggana said, adding that the private equity firm will see at least one IPO every year from its third fund.
“The flows into the domestic equity market have multiplied since the pandemic, and regulations have also evolved. As a result, there is a huge demand for companies operating in this space to be listed so that retail investors have more choices to invest and enter at reasonable multiples at the IPO and then drive growth,” he said. The shift is also driven by larger private equity firms being unable to match the kind of multiple that public markets are offering, although the exact valuation differentials between the two may differ on a case-by-case basis, Buggana added.
Some of its portfolio companies planning to list this year include Symbiotec Pharmalab and Malladi Drugs and Pharmaceuticals. Other imminent exits in the private markets include Ankura Hospitals, Alniche Life Sciences, Aizant and Sharp Sight Eye Hospitals, which are in various stage of their deal-making process, Buggana said.
Earlier this month, Mint reported that Ankura has mandated Alvarez & Marsal to help with a ₹400-500 crore fundraise through which InvAscent may exit its seven-year-old minority stake in part or in full.
The private equity firm is also expecting binding bids for its stake in the Hyderabad-based Aizant Drug Research Solutions Pvt. Ltd, Mint reported in July.
Established in 2005, the life sciences private equity firm has made about 39 investments and exited 20 companies. It handles over $850 million in assets under management, per its official website. InvAscent is focused on the capital needs of small and medium enterprises to bridge a gap left by banks that favour large, established companies.
The investment firm assists promoters in three key areas – capital allocation, getting the organization to a bigger scale and profitability and employee safety and governance. Capital allocation decisions include the quantum of capex needed and how much to spend on R&D and product development, while the other area involves getting the company ready to operate at a scale three to four times the size at which the private equity firm enters.
“A lot of companies are staffed to operate at a certain scale but when they get larger, a lot of inefficiencies creep in. So, we try to work with them actively to get them ready to be a very profitable enterprise when we are ready to exit 5 years later,” Buggana said.