The firm has also been backing founders of Indian origin who aim to build global businesses out of the US across healthcare and IT services, which has yielded good returns, said Avnish Mehra, vice chairman–private equity, at Everstone Capital, in an interview.
“In the last five years, we have deployed about $600 million and returned to our investors close to $1.2 billion. Including co-investments, we have returned $2 billion,” he said. “In every one of the last five years, we have returned more or the same amount of capital that we have deployed in that year.”
Everstone Capital booked an exit out of IT services business Everise when it sold its stake to Warburg Pincus in October. Some of its other exits last year included stake sales in SJS Enterprises in August, and a $180 million partial stake sale in Restaurant Brands Asia, which operates the brand Burger King in India and Indonesia.
The PE firm is also working on exiting its investment in Calibre Chemicals, Mint reported last month. Everstone Capital is also working on exiting its stake in Omega Healthcare Management, ET Now reported in March.
Everstone Capital is currently investing out of its $300 million fourth fund, which was raised as a bridge fund. The “fourth fund was a bridge fund given that the market conditions were tricky with the Ukraine war,” Mehra said.
With co-investments, Everstone expects to end up investing over $600 million to $700 million from its fourth fund. “We have already returned 40% of the capital invested from Fund 4 on the back of the Everise exit,” Mehra said.
Everstone’s third fund, raised in 2016, had a corpus of $730 million, and with co-investments of its limited partners, or investors, it ended up pumping in close to $2.1 billion. The third fund has a DPI (Distributed Paid-in Capital) of 0.9x, Mehra said.
DPI refers to the amount of capital a firm has returned to its investors. In this case, Everstone returned 90% of the capital invested through Fund 3 (90% of $730 million).
Everstone’s Fund 3 still has six investments left to exit. In Fund 3, the firm is already hitting an internal rate of return of 26% on the overall portfolio of deals, and 32% on the companies it has exited, Mehra said.
“Almost 90% of our time is going into the current portfolio. We just want to make sure all the hard work we’ve done since 2016, on Fund 3 and Fund 4, results in really good outcomes for our investors,” Mehra said.
The fifth fund, likely to be launched later this year or next year, will be larger than the third fund—likely close to a billion dollars in size, Mehra said. “We would like to put in close to $100 million dollar cheques in controlled situations. For a good, diversified portfolio, you would want at least eight to 10 assets in that portfolio,” he said.
Everstone focuses on investing in mid-market companies with earnings before interest, tax, depreciation and amortisation (Ebitda) between $10 million and $20 million, where the firm can deploy between $75 million and $225 million of the firm’s equity to take control.
“Through fund three, we did 35 bolt-on acquisitions in our portfolio. In the last 10 years, we have done 60 controlled deals, including bolt-on acquisitions,” Mehra said.
For Everstone, which has more than $7 billion of assets under management, sectors such as healthcare and technology will continue to be core verticals, Mehra said.
Asked about the increasing competition in the growth-stage funding, Mehra said that while competition has increased, so has the supply of assets. “In the mid-market space where we operate and do controlled (deals), we have almost no competition,” he said.
Even as the firm avoids auction and investment-bank driven processes, it is looking for greener pastures in deal making.
Everstone is also going after the Indian diaspora in the US, where it has seen successful investments such as Everise and Omega Healthcare.
“Half of my hunting is happening in India and other half is happening with Indian entrepreneurs in the US, where there are over 5,000 Indian entrepreneurs who have their own companies in healthcare, technology, manufacturing and speciality chemicals, and I spent as much of my time hunting with them as well,” Mehra said.
According to him, Indian origin founders understand the US-end market, but they also understand Indian capability extremely well.
“They understand India’s chemistry skills in pharmaceuticals, they understand India’s technology skills,” Mehra said, “so they are very good at marrying the demand in the US with the supply and export orientation of India to create very interesting businesses.”