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Exclusive: TPG strikes back-to-back control deal in Indian healthcare sector

TPG Growth, the mid-market and growth-equity investment platform of alternative investments giant TPG Capital, has struck its second control oriented deal in Indian healthcare sector and marked its second bet on the medical consumables space.

The investment firm has bought out majority stake in Noida-based surgical suture needles manufacturer Quality Needles Pvt Ltd, two people close to the development told VCCircle.

"TPG invested in Quality Needles some months back for a controlling stake," said one of the persons cited above. He, however, did not reveal the deal value saying he is not authorised to speak to the media.

Another person said the deal involved buyout of the promoters stake in Quality Needles. It could not be immediately ascertained if TPG has bought out the entire stake held by the promoters. Quality Needles was run by Viney Sahgal and family.

Mails sent to spokespersons of TPG Growth and Quality Needles did not elicit any response till the time of filing this article.

This is TPG's second investment in the space after backing Bangalore-based manufacturer of medical consumables Sutures India Pvt Ltd, and the fifth in the healthcare sector including its two recently announced deals.

When TPG had struck a deal with Sutures India back in 2013, it had picked 22.88% for Rs 145 crore. This deal valued Sutures at Rs 633 crore.

Back of the envelope calculations suggests the deal was struck at around 11x trailing operating profit. When TPG raised its holding in Sutures last year, the deal was at a premium to this valuation multiple.

Based on the average of the last two transactions in Sutures and the projected operating profit for Quality Needles for the year ended March 31, 2016, the deal would have valued the Noida-based firm at around Rs 675 crore ($100 million), as per VCCircle estimates.

This means TPG would have shelled out at least Rs 337 crore ($50 million) to buy the stake.

Quality Needles is around one-third the size of Sutures India but enjoys better operating margins, according to VCCEdge, the data research platform of VCCircle.

For the year ended March 31, 2015, Quality Needles clocked a revenue of Rs 82 crore and net profit of Rs 19.84 crore. The firm is yet to file its financials for the 2015-16.

Founded in 1984, the firm specialises in the manufacturing of surgical suture needles for ophthalmic surgery, point needles for cosmetic surgery, cardio-vascular, endoscopy, neurosurgery and sternum closer, according to its website. Its production range comprises over 5,000 different types and sizes of needles.

The company currently exports over 80% of its production to the US, the UK, Switzerland, Russia, Belarus, Germany, France, Belgium, Spain, Morocco, Turkey, Iran, Jordan, Tunisia, Egypt, South Africa, Vietnam, Malaysia and Thailand. Latin America has emerged as an important market for the firm more recently.

India's highly fragmented medical devices sector has attracted lot of private equity investment in the past years. According to Espicom Business Intelligence, a research firm for the healthcare industry, the size of India's medical devices market was $3.4 billion in 2014 and it is estimated to grow at a compound annual rate of 7.3% to $4.8 billion in 2019.

TPG's healthcare investments
TPG that has two separate teams chasing large buyout transactions as well as growth equity investments across sectors, invests in India out of its Asian funds. Even as its control deals and big investments in companies with minority stake is routed through the buyout funds, it has inked a few control oriented deals in India from TPG Growth.

Early this year it picked a majority stake in South Asia-focused cancer treatment provider Cancer Treatment Services International (CTSI) through TPG Growth.

The investment major that has struck halve a dozen deals in India, according to VCCEdge, has been particularly bullish on healthcare as a sector. Half of the deals this year has been in the healthcare space.

Early this month, TPG said it has invested $33 million (Rs 220 crore) in Rhea Healthcare Pvt. Ltd, which runs a chain of mother- and child-care hospitals under the brand Motherhood, for a significant majority stake.

Prior to these two investments, TPG had invested million in Manipal Health Enterprises Ltd (MHEL), the healthcare arm of Manipal Group, for a significant minority stake in 2015.

In December 2015, TPG Growth acquired a 28% stake in Sri Lanka’s Asiri Hospital Holdings from private equity firm Actis Investment Holdings.

TPG Growth’s investments in healthcare companies across India and Sri Lanka now total nearly $250 million, TPG said in a statement recently.

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