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Exclusive: Sutures may merge with another TPG portfolio firm ahead of IPO


Private equity firm TPG Growth is planning to consolidate two portfolio firms in the medical consumable sector in India as it seeks to test the public market for the business, two people aware of the development told VCCircle.

The growth equity arm of the buyout firm is looking to merge Bangalore-based Sutures India Pvt Ltd, in which it has a near-majority stake, with another company before taking Sutures public.

In a parallel development, another private equity investor in Sutures, CX Partners, which was looking to exit through a secondary PE deal with a proposed stake sale to Kedaara Capital, is believed to be reviewing the plan.

CX Partners would look to exit Sutures through the proposed initial public offering instead, one of the two persons said.

As part of the plan being considered, Sutures may merge with Quality Needles Pvt Ltd to get a better valuation during the IPO, the second person said. Both persons didn’t wish to be named.

Sutures India, which is bigger than Quality Needles in size, is also negotiating a large overseas acquisition, the second person added. The entire consolidation process is likely to take at least six months.

TPG declined to comment on the development while emails sent to Sutures India and Quality Needles did not elicit any response till the time of filing this article.

Sutures India has already started meeting investment bankers to explore a possible IPO, VCCircle reported in December. The bankers are waiting to hear from Sutures India, the second person said.

If Sutures does list on the stock exchanges, this would be a rare instance of a TPG portfolio firm going public. Another TPG-backed company that had been looking to go public was AGS Transact Technologies Ltd, which received regulatory approval for the IPO in 2015 but didn’t go through with the offering.

CX Partners to exit
Meanwhile, CX Partners, which has a 13% stake in Sutures India after selling a big chunk to TPG in 2015, has been looking to sell its entire holdingin the company while Kedaara Capital has been reportedly in talks to buy its stake.

However, the first person cited above said that CX Partners is now keen to exit through an IPO as it expects to get a better valuation and that the reported deal with Kedaara is “not happening”.

Sutures India will go for the IPO on its own even if the merger that TPG is considering does not happen, the person said. The plans will be clearer in March after taking on board all stakeholders, he added.

Kedaara declined to comment while an email to CX Partners seeking comment did not elicit a response.

CX Partners had originally invested Rs 193 crore ($38 million then) in Sutures India in September 2012 for a 37% stake. This was through a secondary deal in which it bought out the entire stake held by private equity firm India Life Sciences Fund, earlier known as Evolvence India Life Science Fund.

Sutures, Quality Needles
An IPO for Sutures India will be the first for a medical devices firm in the country. Sutures India was founded in 1992. It sells wound-closure products such as natural and synthetic sutures, surgical needles, staples, tapes, hernia meshes and disposable surgical gloves.

The firm sells its products in India and exports to countries across Europe, South America, Africa and Asia. It has an installed annual capacity to produce 20 million sterile sutures at its Bangalore plant.

The company's revenue fell to almost Rs 220 crore in the financial year ended March 2015 from Rs 239 crore the previous year, show data from VCCEdge, the research platform of News Corp VCCircle. Net profit soared 81% to Rs 46.31 crore. Sutures is yet to file its financials for the 2015-16.

TPG has not made its investment in Quality Needles public. VCCircle first reported the investment in the New Delhi-based firm last year.

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

For the year ended 31 March 2015, Quality Needles clocked revenue of Rs 82 crore and net profit of Rs 19.84 crore. The company’s financials for 2015-16 couldn’t be ascertained.

Founded in 1984, the firm makes 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.

There has been significant investor interest in the sector in India where imports still form 75-80% of the total consumption of medical devices, equipment and consumables. 

India Value Fund Advisors has backed Trivitron Healthcare and Samara Capital has invested in Lotus Surgicals Pvt Ltd and Sahajanand Medical Technologies Pvt. Ltd. VCCircle last week reported that Samara Capital was looking for a strategic buyer for Lotus Surgicals.

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

The investment firm has struck half a dozen deals in India, and has been particularly bullish on the healthcare sector. 

Last year, it picked up a majority stake in South Asia-focused Cancer Treatment Services International and Rhea Healthcare Pvt. Ltd, which runs a chain of mother- and child-care hospitals under the brand Motherhood.

TPG had previously invested in Manipal Health Enterprises Ltd, 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 total nearly $250 million, the PE firm said last year.

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