In India, LPs’ journey from notebook to cheque book won’t happen in a hurry: Hajarnavis, Sealink Capital

Heramb Hajarnavis, Founder and Managing Partner of SeaLink Capital Partners

While India-focused mid-market private equity firm SeaLink Capital Partners has made only one investment since it was founded in 2015, it is now looking to pick up the pace and make around 8-12 deals in the next three to five years.

Founded by former Goldman Sachs and KKR executive Heramb Hajarnavis, SeaLink Capital recently closed its maiden fund at $315 million, surpassing its initial target to raise $250 million.

In an interview with DEALSTREETASIA, Hajarnavis talks about the fundraising and investment environment in the country as well as SeaLink’s plans for India.

Edited Excerpts:-

The private equity space has seen a bit of ups and downs in the last few years. How do you view the current investment ecosystem in India? How do you see the private equity space in India playing out in the near future?

We continue to see a barbell-shaped supply of capital to India – lots of excitement in the startup world which has had a positive impact on venture financing, and intense competition for large ($100 million+) checks. The funding gap in the middle continues to be an area of opportunity.

Indian private equity has matured over the past decade and all members of the ecosystem have become more discerning in partner selection. While valuation will always be important, partnership dynamics and tangible ability to assist in scaling up – through enhancing talent, introductions to customers or partners, M&A etc. – will increase in importance whether in minority investments or in control situations.

You have made only one reported deal since you launched in 2015, is there any particular reason why you have been so selective in your investments?
We have set a very high threshold for our portfolio. Our team looks for high growth companies that have established competitive differentiation, created significant barrier(s) to entry within their industry and are led by outstanding management teams. These are all areas that we will not compromise on.

Our investment in NephroPlus (India’s largest operator of dialysis centres) in 2016 reflects that high bar; and we expect to make additional investments in the near future that do the same.

Are there any particular sectors that you would be keen to interest in?

Our sectors of focus include healthcare, information technology, business services, financial services, consumer products and niche manufacturing.

What is your investment strategy like? How do you plan to expand your portfolio?

Through a disciplined due diligence process, SCP identifies key value creation levers, drivers of scalability, potential risk factors, and current capabilities of potential investee companies. We believe in active, partnership-based involvement with portfolio companies, and look to go beyond financial investment by utilizing a well-defined and demonstrated operational value-add approach, enhanced strategic focus and strong emphasis on corporate governance.

So you have a number in mind for the companies you plan to invest in through this fund?

We expect to make 8-12 investments over the next 3-5 years.

What is the average size of investments that you make?

The target investment size is $15 million – $50 million, with flexibility to scale up commitments selectively.

Would you also be interested in PIPE deals?

We have flexibility within our investment mandate. Besides evaluating opportunities across key sectors, we are open to significant minority vs. control deals and public vs. private investments. The bottom line is that we have to have a high degree of conviction in the potential of the company and the quality of the management team.

Valuations have been a cause for concern for investors over the last few years, have they rationalised now?
High quality companies will always be at a premium. Our focus is on investing in high potential companies at fair valuations and working closely with them to enhance their performance and maximize returns to our investors at exit.

Exits have been a pain point for investors, has the situation changed now, as we see the number of IPOs and secondary share sales increasing?

The last two years have undoubtedly seen a strong uptick in exits, which were supported by buoyant public equity markets. The Indian PE space has been going through the process of evolution, and we are seeing robustness in exits across different modes – strategic sales, secondary sales to other PE firms, or public markets. This bodes well for the Indian private equity industry and, in turn, is also advantageous to high quality companies that are looking for funding.

Since you have been in the fundraising mode for some time, has the view of LPs towards Indian PE funds changed over the last few years?
While global investors are interested in India and believe in its long-term potential, they have been skeptical because of the historical lack of exit for private equity investments. That does seem to have improved more recently and I believe that with more investors receiving capital back, their view on the Indian market should become more favorable. Nonetheless, I think LPs are carefully evaluating the evolution of the industry in India and their journey from the notebook to the cheque book isn’t going to happen in a hurry.

Would you also be interested in investing in overseas companies? If yes, then which regions and sectors look most attractive?
We are strong believers in the growth potential of mid-sized business in India. Our strategy is to invest in businesses that are organized or located in India or have significant operations in India.

How do you view the next one year for SeaLink Capital?

Busy! There are a few prospective investments which have met the high threshold that we have set for our portfolio and which we are actively evaluating. We believe that our team’s extensive investment experience and operational orientation will make SCP a preferred partner for high quality entrepreneurs and management teams. Given our philosophy of active partnership with our portfolio companies, we will also be working closely with them post the investments to help accelerate their growth, optimize performance and achieve their long-term objectives while maximizing value creation for our investors.

Also Read:

SeaLink Capital raises maiden India-focused fund at $315m; exceeds target

India: NephroPlus raises $15m in a Series C round led by Sealink Capital, IFC