M&A

Tano Capital to raise third fund of $200 million

Tano Capital’s plan to raise funds comes at a time when exits are on the rise for PE funds in India

Growth capital private equity (PE) firm Tano Capital, which invests in small and medium enterprises, plans to raise its third fund of almost $200 million and will embark on the exercise before the end of the calendar year, according to two people aware of the development.

Tano Capital will almost exhaust its current fund through two investments that it is currently negotiating, said one of the two people mentioned above, requesting anonymity as he is not authorized to speak to the media.

Tano raised its second fund of $111.3 million in 2012 from overseas investors. It raised its first fund of $100 million in 2006.

“The deals are in the final stages of negotiations. The fund will be investing almost $20-25 million in these two deals,” the first person said, adding that one of the firms the fund is in talks with is affordable housing company VBHC Value Homes Pvt. Ltd.

On 14 September, Mint reported that VBHC was in talks with Tano Capital and Ambit Corporate Finance to raise around $20 million. Tano is looking to invest around $10 million in VBHC and the deal is expected to close by October-end.

In August, Tano invested $12 million to acquire a 16.4% stake in Windlass Biotech Ltd, a contract manufacturing firm serving pharmaceutical companies. In March, Tano also invested around $9.5 million in Arohan Financial Services Pvt. Ltd.

The larger capital pool will help the PE fund make larger investments to the tune of $20-25 million compared with its current ticket sizes of $10-15 million, said the first person cited above.

The mid-market PE fund is also focusing on exits.

“They have lined up two exits through the initial public offering (IPO) route and are also looking to exit one of their public market investments. The exit pipeline will help them in going to LPs (limited partners) and seek investment for a new fund,” said the second person mentioned above, also requesting anonymity.

Tano Capital’s portfolio firms Shree Shubham Logistics Ltd, an agri-commodity warehousing firm, and SSIPL Retail Ltd, a footwear manufacturer and retailer, are planning to go public and have filed their draft IPO papers with market regulator Securities and Exchange Board of India.

Tano Capital invested $15 million in Shree Shubham Logistics in 2013. The fund plans to sell its entire stake of 14.27% in the firm through the IPO. It also plans to sell its entire shareholding of 15.85% in SSIPL Retail through the IPO. Tano invested in SSIPL in 2006.

Across its two funds, Tano has made six exits so far, totalling almost $60 million, according to data from VCCEdge, the financial research platform of VCCircle.com.

Several emails sent to Tano Capital seeking a comment on its new fund did not elicit any response. An email sent on Wednesday evening to Hetal Gandhi, managing director at Tano Tano India Advisors Pvt Ltd, also went unanswered.

Tano Capital’s fund-raising plan comes at a time when exits are on the rise for PE funds in India, improving the fund-raising environment. So far this calendar year, PE funds such as Everstone Capital ($730 million) and India Value Fund Advisors ($700 million) have announced the final close of their new funds.

According to a August report by PwC MoneyTree India, citing data from Venture Intelligence, Indian PE fund managers have managed to return $5.15 billion to their investors in the first six months of this year. This is the highest amount secured through exits by domestic funds in the past five years.

With the coming of a new government at the centre last year, a renewed push towards reforms, improving macro-indicators such as inflation, falling interest rates and the buoyancy in secondary markets, the health of the Indian economy has improved substantially, aiding exit activity in the PE industry.

“Investors are looking at India closely, especially now that so many exits are happening. The fund-raising environment is positive, but it’s not an over-bullish sentiment where everyone will be able to raise funds,” said Harish H.V., partner at Grant Thornton India Llp.

Fund-raising will be easier for people with an established track record, he said, adding that newer funds will still find it difficult to raise money.

“Slowdown in other emerging markets is also helping India. However, there is a concern that due to the issues with China and other emerging markets such as Russia and Brazil, people might reduce their overall exposure to emerging markets,” said Harish.

The article appeared in Mint. The article can be found here.