CX Partners turns focus on exits

The home-grown private equity firm set to launch its second fund in 6 months

Last week, when Thyrocare Technologies got the Securities and Exchange Board of India (Sebi)’s approval for its long-awaited initial public offering (IPO), private equity (PE) firm CX Partners’ exit plans got a boost. Thyrocare’s Rs 400-crore proposed issue will see the home-grown PE firm offloading 19 per cent of its 21 per cent stake in the company. An additional one per cent stake will be offloaded by its founder and chief executive officer, A Velumnai.

The PE firm has put its focus on exits before it launches its second fund in the next six months to raise $500 million. The other significant exits it has planned include business process outsourcing (BPO) firm Minacs that it acquired from the Aditya Birla Group about two years ago and surgical equipment maker Sutures India.

“We would like to showcase a healthy return track record before we launch our next fund,” says Jayanta Basu, who took the reins of the firm as managing partner in December from Ajay Relan.  

Founded in 2009, CX Partners raised a maiden fund of $515 million in the following year. In the same year, it made its first significant investment of Rs 188 crore for a 30 per cent stake in Thyrocare Technologies, valuing the company at Rs 626 crore. Now, with a valuation of Rs 2,000 crore, CX Partners investment has seen about three times return in about six years. Over the years, it has already brought down its holding in Thyrocare to 21 per cent, partly monetising its stake.

The PE firm is fully invested across about 15 firms. This includes Barbeque Nation Hospitality, generic drugmaker Natco Pharma, south Indian lender Karur Vysya Bank and small finance bank licence winner Ujjivan, in which it invested last year.

So far, the fund has monetised investments largely through part-sales. It made its first full exit in 2015 by selling its entire investment in troubled steel maker Monnet Ispat & Energy for about Rs 60 crore, losing about two-thirds of its investment.

This put pressure on the firm to show a stronger track record for healthy returns before it could launch a second fund. The fund is also expecting significant returns from Minacs.

“A lot of effort has gone into improving operating margin of the firm by about 500 basis points,” says Basu. “We were able to do so because we were in control. We could bring down excesses and rationalise our clientele,” he says, while declining to put a number to the returns he is expecting from Minacs.

CX Partners, along with home-grown private equity firm Capital Square Partners, had bought Minacs at $260 million from Aditya Birla Nuvo. Minacs now has annual earnings before interest, taxes, depreciation and amortisation of about $55 million.  Market sources estimate it to be commanding a valuation of $500 million.

It has also mandated investment banking firm o3 Capital to sell its 20 per cent stake in Sutures India to provide a healthy return track record to the limited partners. “We will continue to do significant minority and control deals depending on opportunities. However, our focus now will be more on IT (information technology), pharmaceutical, health care and financial services sectors,” says Basu.
INVESTMENTS

• Barbeque Nation
• Matrix Cellular
• Imperativ Hospitality
• Mrs. Bectors Food Specialities
• Sapphire Foods
• Ujjivan
• South Indian Bank
• Karur Vysya Bank
• Thyrocare
• Sutures India
• Natco Pharma
• Minacs
• KPIT Technologies
• NTL Electronics
• Transaction Solutions
• Security and Intelligence Services