Riding on exits, Motilal Oswal PE eyes third fund

The private equity (PE) arm of Motilal Oswal Financial Services is hoping to ride on its recent exits to raise $250-300 million for a third fund that will invest in small- to mid-sized companies.

Over the past two years, Motilal Oswal Private Equity made seven-eight exits from its 2007-vintage fund with good returns. These include Power Mech Projects (4x), Mrs Bector Foods (4.5x), Parag Milk Foods (4.3x), Minda Industries (5x) and Au Financiers over 13x, where it was the first investor.

There were two promoter buybacks, where the firm lost money. The firm has also made good returns on exits in its real estate funds. It has exited five of the eight investments it made from its first fund with an IRR (internal rate of return) of 18-20 per cent, and has already made a couple of exits from its second fund with IRR of 27-28 per cent, said Vishal Tulsyan, chief executive officer, Motilal Oswal Private Equity. The firm had raised two real estate funds of $45 million and $80 million in 2008 and 2014, respectively, and is currently in the process of raising its third fund of $160 mn (already raised over $100 mn).

The new PE fund will target deals in the range of $18-20 million, higher than the firm's average investment size of $8.5 million for the first fund and $13-14 million for the second fund. The PE firm raised $125 million for its first fund in 2007-08 and $170 million for the second fund in 2011. Bulk of this ($105 million) was raised from international investors.

The PE firm is finalising dates for roadshows for the third fund and has inducted four operating partners to guide the investee companies.

Motilal Oswal PE's second fund invested in companies like Arinna Lifesciences, GR Infraprojects Ltd, Glass Wall Systems India, India Energy Exchange and Intec Capital. It recently exited Parag Milk Foods Ltd when it went public.

Several PE firms are floating new funds to invest in mid-market companies. Multiples Alternate Asset Management is raising $550-600 million in its second fund that will invest in mid-market companies while Carpediem Capital Partners has raised bulk of the target amount in its debut mid-market-focused PE fund.

In March, Paragon Partners announced the first close of its maiden fund at $50 million which will be deployed in mid-market companies. In October last year, mid-market India-focused PE firm Lighthouse Funds raised $138 million for its India 2020 Fund II.