Q&A: Everstone Group's Sameer Sain

Q: Everstone recently became a signatory of the UN principles for responsible investment (PRI). What’s the significance of this move?

A: ESG [environmental, social, and governance] investing is a very important part of Everstone’s DNA. We are one of the few firms that has two full-time ESG officers. We are very focused on ensuring that all our companies – not just in private equity but across the platform – have very strong ESG compliance. The UN PRI is a steppingstone toward ensuring that we continue to raise our standards on this front. We believe it’s going to become a critical part of investment going forward. When we partner with global players and they see us operate in this manner, I think it helps us in many ways. Commercially, it’s a smart move.

Q: What has been the reaction of LPs?

A: It’s a mixed bag. Some people care and some don’t. But I can tell you that the world is moving toward this being an important aspect of thinking going forward. Go to Norway and you find that the sovereign fund won’t invest in you if you’re not ESG compliant. You won’t even appear on their radar. I’m not saying everyone is going to be like that, but it’s becoming important. Along with IFC [International Finance Corporation], we rolled out our first sustainability report last year to share what we’ve done with our LPs. But it’s not about fundraising. There’s enough capital. It would not be a problem for us to go raise $1 billion from people who don’t care about ESG.

Q: What’s the status of your latest fund?

A: Fund III is almost fully invested and we’re about to launch Fund IV. Fund III has been a terrific performer. We think we’ll be a comfortable 3x. The DPI [distributions to paid-in] is 0.75-0.8. For a 2016-vintage fund, we’re sitting on a 25-27% IRR. That puts us in a very strong position, and we think the fund dynamic continues to improve. We’re very focused on what we do, and we’ll continue to do the same thing with Fund IV. We have a huge pipeline. We have the largest private equity team in our region with 32 full-time pure PE professionals and stable partnerships.

Q: Can you elaborate on the Fund IV plan?

A: It will be exactly the same strategy that we do now, which is mid-market control-growth, with the occasional minority transaction in difficult-to-buy businesses where we can partner with an outstanding entrepreneur. Our average check size is $80-100 million, but we can do $200-250 million when we bring in our LPs and other partners as co-investors. Fund III ended up deploying around $1.6 billion even though the fund was $730 million, so I think $1 billion to $1.2 billion is the right number for us for Fund IV, and we would like to do at least 12 investments. We may have a slightly bigger check size to adjust for inflation. But I would say the growth of the fund size is less than the nominal GDP growth in India in the last five years.

Q: What are you seeing in the market?

A: The areas where we see the most opportunities are broadly in healthcare, pharma, IT, and business services, and a little on the industrials side. In tech services and business services, we love the outsourcing theme, and I don’t mean labor arbitrage – I mean skillset arbitrage. We like businesses outsourcing various activities for larger firms using technology. In healthcare, we’re geared toward certain segments like diagnostics and hospitals in tier-two cities, where you are a little bit under the radar in the middle market space with a niche focus and great growth trajectories. So, there are pockets, but you have to be careful where you play in IT and healthcare. We’re also seeing a trend in India toward more control transactions, which really suits us.

Q: Where are you being cautious?

A: We love financial services and we are hunting there but we are not able to find the kinds of opportunities that excite us there yet. It’s a question of pricing and market cycles. To get control in financial services and really scale a business the way we like to, the strategics just end up paying a bigger and better price. We tend to look at it with more of an active minority lens. We like credit and insurance, but not brokerages and transactional businesses. There’s a lot of fluff in financial services and the dust is yet to settle.

Q: What about consumer?

A: Again, we see a very good set of opportunities, but it’s a pricing issue. We love this space structurally speaking, but we think it’s hard to get the kinds of things that we like on the value side like Modern Foods [a bread brand exited last week]. That was a control situation at a sensible price. We were able to really build strong governance systems, technology, manufacturing processes, health and safety, and really institutionalize the business. We may have sold it a year or two early, but we felt that Grupo Bimbo, the largest bread brand in the world, was the right firm. We used drones to do the diligence because they’re based in Mexico. They really have the credibility and global scale to transform Modern Foods better than we could.

Q: What kind of outcome did you get with Modern Foods?

A: Modern Foods has been an okay investment for us, but I couldn’t call it a homerun. We’ve done significantly better in other businesses. Bread is bread. It’s hard to innovate too much with it because it takes a long time to build adjacencies and brand extension. We managed to get a good price on it because of the complexity of the transaction. It was a division of Unilever, not a subsidiary. So, we had to carve it out, take over several factories, and negotiate terms with labor unions. It came with no management, so we had to airdrop a bunch of Everstone operating people in there. It would be a very difficult transaction for someone in the middle market unless they had the operating capability and scale that we do.

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• Topics
• South Asia
• GPs
• Fundraising
• Buyout
• India
• Everstone Capital
• ESG