Venture capital (VC) firm Sequoia Capital India has agreed to sell part of its stake in diagnostics and pathology services firm, Dr Lal PathLabs Pvt. Ltd, to US-based private equity firm TA Associates Inc., whose total capital base stands at $16 billion (`74,560 crore).
The 56-year-old Dr Lal PathLabs offers diagnostic facilities through 875 outlets in India.
Sequoia director Sandeep Singhal said at least 20 potential investors competed for the shares. The investment in Dr Lal PathLabs was the last from Sequoia’s first fund, launched in 2000. Sequoia made investments in two tranches, with the first phase of funding coming in 2005, and the second in 2007.
“We have held this investment for five years, it’s a fantastic business. We have sold part of the stake and kept the rest,” Singhal said. “We have been pursued aggressively by interested parties for the last 18 months.”
The development comes after drug maker Piramal Healthcare Ltd said in July that was selling its diagnostic services unit to Super Religare Laboratories Ltd for `600 crore.
The promoters of Dr Lal PathLabs hold two-thirds of the firm, with Sequoia holding the rest. The VC firm is divesting half its stake, according to a person familiar with the deal, who spoke on condition of anonymity. He said the valuation had risen 9-10 times. Mint couldn’t independently verify this.
Sequoia undertook a shortlisting process for potential suitors that lasted 18 months.
Dr Lal PathLabs started out with one laboratory in present-day Pakistan. Today, it has 75 labs and 800 collection centres.
When the promoters— Arvind Lal and wife Vandana, both doctors—decided to accept PE involvement, Sequoia brought in Om Manchanda, who had served in senior management positions in firms such as Hindustan Unilever, Monsanto and Ranbaxy, which helped the business, Singhal said.
“The company, before our involvement (in 2005) had revenue of `40 crore,” Singhal said. “In FY2011, revenue is expected to be in the `250 crore-odd range and profit alone will be about `40 crore.”
Singhal neither confirmed nor denied speculation that the valuation had climbed to `2,000 crore. He also refused to comment on whether the returns were in the vicinity of 9-10 times.
The reason for the partial stake sale was because Sequoia wanted to “balance the opportunity, and to also return money to LPs (limited partners), who have waited for a very long time”, Singhal said.
He denied that the sale was due to concerns about future performance.
“We would like to give our LPs some return on their capital, so it was to meet our annual target of a certain amount of money to return to our investors,” he said. “We discipline ourselves and let go of some good investments and look ahead for further value.”
Singhal said a public offering was decided against as the company “is still in the significant growth stage”.
The promoters and general partners are confident about expanding significantly in the coming years, he said.
Source: Livemint