SEAF second India agri fund sets sights on $150m

SEAF India Investment Advisors (SIIA) is seeking to raise $150 million, including $100 million from international investors and $50 million domestically, for its next agribusiness fund. The firm has begun fund raising for its new vehicle, talking to existing limited partners, SIIA managing director Hemendra Mathur told Private Equity International.

The fund, which is sponsored by the US-based Small Enterprise Assistance Funds (SEAF) and managed by SIIA, will be a successor to the SEAF India Agribusiness Fund and the SEAF India Agribusiness International Fund.

The limited partners in the existing funds include SEAF, which accounts for about 15 percent of commitments, Canada’s Sarona Asset Management, US family office Midland Capital, the Omindyer Network, New Ireland Capital, Proparco and Unigrains in France, the Small Industries Development Bank of India, Life Insurance Corporation of India, the National Bank of Agriculture & Rural Development and India’s Technology Development Board.

The existing funds, established in 2010 with a combined capital of $42 million, invest in parallel in food and agricultural businesses across the supply chain from food ingredients, seeds, feed, wheat milling and warehousing to restaurants. They function as one fund with a structure that reflects different domestic and international investor bases, Mathur said.

The capital is 80 percent invested across eight transactions and the funds are finalising the ninth, Mathur said. They are targeting an internal rate of return of 25 percent, but have yet to exit any of their portfolio companies. Mathur expects to “make a couple” of exits in the next six to nine months.

The existing vehicles invest $2 million to $5 million per transaction, which SIIA aims to raise to $5 million to $10 million for its next fund.

“We have a good pipeline and we are looking at companies across the supply chain over an investment period of two to three years,” Mathur said.

When asked about valuations, Mathur commented that at the consumer end in the restaurant segment deals are expensive, with companies priced at an enterprise value of 15 to 30 times EBITDA, while at the back end of the food supply chain valuations are in the range of enterprise values of six to twelve times EBITDA.

The existing funds seek out opportunities in small, rural towns.

“It is not easy to find deals in such remote locations. We have been working for 15 years and we know a few enterprises. It can take up to 18 months to execute a deal. Most of the companies are family driven or owned and they are not very open to outside investment and it takes time to convince them of the value. We look to lower their cost of debt and expand them,” Mathur said.

The opportunity is “untapped” in a space where there is little competition and huge potential to add value, he said. Agriculture represents a significant proportion of the economy and is getting more organised, he said, noting that on the supply side, the market is fragmented and there is scope to create efficiencies in line with market demand and exploit export opportunities.