India: Paragon Partners closes maiden PE fund at $120m, plans to deploy 70% by Apr

Mumbai-based private equity firm Paragon Partners has completed the fund-raising for its maiden growth fund at $120 million, and is planning to build a portfolio of 8-10 companies from it.

The firm was targeting to raise $200 million for its fund PPGF-I, comprising a fund size of $100 million with a green shoe option of an additional $100 million.

In March 2016, the private equity firm had announced the first close of its fund at $50 million.

A majority of the commitments for PPGF-I have come in from domestic investors including SIDBI, India Infoline, Edelweiss Group and Infina Finance Private Limited (an associate of Kotak Mahindra Bank Ltd) and around 40 per cent of the funds have come in from international investments. Canada-based Fairfax group has come is an initial anchor investor for the fund.

Founded in mid-2015, Siddharth Parekh and Sumeet Nindrajog, Paragon has made its maiden investment of $10 million in Mumbai-based EPC company Capacit’e, which recently went public.

Since then, it has invested in Bengaluru-based Maini Precision Products Ltd, manufacturer and supplier of high-precision engineering components in August last year. In March 2017, it backed Cravatex Brands, retailer and distributor for FILA, and InCred, a technology-driven non-banking financial institution.

The company has already deployed around $45 million in the four portfolio companies.

“We are actively looking at two consumer-focussed companies and another financial services company as well. We expect that in the next two-three months, we will probably close maybe 2-3 investments and potentially be about 70 per cent deployed by end of March,” Sumeet Nindrajog co-founder and senior partner at Paragon Partners told DEALSTREETASIA.

It has five core sectors of focus, including consumer discretionary, financial services, infrastructure services (capex light), industrials and healthcare services.

With a $10-15 million investment range, the company usually prefers to pick up significant minority stake in its investee firms.

Speaking on whether Paragon would also look at investing in public listed companies, Siddharth Parekh, co-founder and senior partner said, “We are primarily focused on unlisted growth capital, pick up minority stake where we can be active investors. We like to get involved in the operations and help promoters execute and you can’t do that with listed companies.”

“We will be flexible to do one or two PIPE deals along the way, we don’t have any set restrictions of thresholds. Selectively, we can look at the public markets, but it’s not our focus area,” added Parekh.

With deployment on the top of its agenda for next year, the company could look at a second fund in the later part of 2018.

“We will have to show some maturity in our portfolio. It will be important for us to show some distribution of capital, prior to raisin a new fund. But we expect that we will be able to do something along those lines some time in the next calendar year,” said Nindrajog.

Private equity market has picked up pace in the last few years, with the launch of new funds. Recently, another Mumbai-based private equity firm Lighthouse Funds reached the preliminary first close of its third India-focused fund at $80 million. Lighthouse aims to make the first close at around $130 million by the end of the year.

Other mid-market private investors currently raising funds include Amicus Capital, which is planning to make a final close of its $200-million fund by the end of March. IDFC Alternatives is reportedly aiming to close its fourth consumer-focused fund by December. Also, ICICI Venture is also likely to close $350-million fund by the end of the year.

“It is a lot better today than probably what it was a couple of years ago in terms of being able to raise funds, there is more general confidence among international investors in India as a geography. What we’ve also seen that a lot of the domestic guys have become more active as well,” said Nindrajog.

With the number of exits increasing along with the record increase in exits through public listings have also pushed up investor sentiment in the Indian market, along with ease in government regulations.

“The exit climate has improved. We’ve seen a hot IPO market in the last 6-12 months and a lot of offers for sale, where a lot of PE firms have exited at good multiples. The exit route has delivered well for PE investors. The pace of exit activity has picked up in the last 12 months and you’re seeing funds return capital at good rates as well,” said Parekh.

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