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Exclusive: Samara scouting for buyers for healthcare portfolio firm

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Samara Capital Management Ltd, which is investing out of its second fund, has engaged an investment banking firm to scout for a strategic buyer for one of its healthcare portfolio firms, two persons aware of the development told VCCircle. The development comes as the sector-agnostic private equity firm is seeking to find investors for its third fund.

In November, VCCircle reported that Samara Capital has charted out a plan to exhaust the remaining corpus of the second fund over the next year and hit the road again for the third time. While private equity firms typically ready plan for their next fund when they are through with deploying a major chunk of their old fund, they also aim to execute exits before they reach out to limited partners (LPs).

"Samara Capital has hired Lincoln International to find a strategic buyer for Lotus Surgicals. They (investment firm) have been running the mandate for some months now," one of the persons cited above said. 

Another person involved in the process also confirmed the development. However, both of them declined to share details on the valuations that Samara Capital, which generally targets mid-market deals, is looking at.

A Lotus Surgicals' executive, who did not wish to be named, said he is oblivious to the development but added Samara could have mandated a banker as it is the majority stakeholder in the firm.

E-mail queries sent to spokespersons of Samara and Lincoln did not elicit a response till the time of filing this article.

Samara Capital had invested $12.89 million for an 86% stake in the Mumbai-based medical consumables maker in 2013, according to VCCEdge, the data research platform of News Corp VCCircle.

The private equity firm had struck the deal at a time when investments in the medical device and consumables space were growing. The same year private equity major India Value Fund Advisors (IVFA) invested Rs 150 crore for a minority stake in Chennai-based medical equipment manufacturer Trivitron Healthcare.

Lotus Surgicals and medical devices space in India
Lotus Surgicals, which was founded by Mehernosh Daruwalla in 2005, has a manufacturing facility in Dehradun. It has a customer base of more than 2,500 hospitals and nursing homes across the country. Its sales and distribution network has resulted in a 75% annual growth for the firm, according to its website. Lotus Surgicals' latest financials are not available.

When Samara Capital had invested in Lotus Surgicals, the firm had clocked net sales of Rs 35.45 crore for the financial year ended 31 March 2013 according to its ROC filings. In the following financial year, the company's net sales rose by 20% to Rs 42.75 crore and it was still earnings before interest, tax, depreciation and amortisation (EBITDA) negative at that time.

In the past years, there has been significant investor interest to back a few reasonably large home-grown firms for building further scale in India where imports still form 75-80% of the total consumption of medical devices, equipment and consumables.

Notably, just last year, Samara Capital invested close to Rs 170 crore ($25 million) in Gujarat-based stent maker Sahajanand Medical Technologies Pvt. Ltd even as it is looking to exit Lotus, underscoring its bet on the sector. 

TPG Growth, the mid-market and growth-equity investment platform of alternative investments giant TPG Capital, also struck its second control-oriented deal in the Indian healthcare sector and marked its second bet on the medical consumables space, as previously reported by VCCircle. It already has an investment in another medical consumables maker Sutures India, which is planning to go public.

The government last year announced a raft of measures, including releasing the draft rules to regulate the medical devices sector that could eventually pave the way for the sector to be delinked from the pharmaceuticals space.

Other private equity deals in the medical devices sector that were closed last year include investments in Biorad Medisys Pvt. Ltd by India Life Sciences Fund II and Consure Medical Pvt. Ltd by Accel Partners.

Samara Capital
The PE firm, co-founded by former top Citigroup India executives Sumeet Narang and Gautam Gode, is currently sitting on a dry powder of around $150 million from its second fund. It has backed half a dozen companies so far from its last fund, which raised $300 million.  

Samara Capital is looking to invest the remaining amount across at least seven firms as it goes about courting LPs for the third fund, VCCircle reported citing an unidentified person

“The new fund has a target corpus of $400 million. It will be launched by next year,” one of the persons cited earlier said.

Samara had sought to raise a similar amount last time too, according to filings with US SEC. However, it closed the fund with $300 million. 

The PE firm’s first fund launched in 2007 had originally planned to raise $125 million for which it had received early commitments of $65 million but later it raised the target corpus to $300 million and raised at least $263 million, SEC filings by the company show. If it manages to raise $400 million, its total fundraise would near the $1 billion mark.

The company’s second fund, christened as Samara Capital Partners Fund II Ltd, has invested more than $150 million in six companies. Other portfolio companies of the fund include drug maker Adcock Ingram Holdings and Sapphire Foods India Pvt. Ltd (franchisee of several KFC and Pizza Hut outlets in India).

Meanwhile, Samara Capital has partially exited from five companies from the first fund. Public listed firms Thyrocare Technologies (diagnostics chain) and Monte Carlo (apparel firm) are among its significant partial exits, allowing Samara Capital to return 70% of the capital raised to LPs.

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Samara Capital Management Ltd. is a private equity fund. It provides growth capital to companies operating in India. The firm seeks to invest in media, consumer products, services and retail, information technology and outsourcing, financial service, pharmaceuticals and healthcare, infrastructure and infrastructure ancillary industries. The company was founded in 2006 and is based in Mumbai, Maharashtra with additional offices Mauritius and Delhi.

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