New Delhi, July 16 -- Indian private equity firm True North and Singaporean state investment firm Temasek are exiting a healthcare portfolio company with poor returns on their bet as the company has found a new private equity buyer.

The two investment firms have struck a deal to sell their entire stake in Indian drug formulations maker Integrace Pvt Ltd to US buyout firm Warburg Pincus.

Warburg said Wednesday that it agreed to acquire Integrace, which focuses on the orthopedics and gynecology segments, and that it has named MSD India's former managing director Rehan Khan as Integrace's new CEO.

While the transaction terms weren't disclosed, media reports suggest the deal valued Integrace at Rs 1,200 crore (around $125 million).

True North, currently Integrace's majority shareholder, didn't immediately respond to a request for comment.

Return estimates

Integrace was founded in 2018 after True North agreed to buy a majority stake in Glenmark Pharmaceuticals Ltd's orthopedic and pain management business for Rs 460 crore, valuing it at Rs 635 crore ($90 million then). In the same year, True North roped in Kedar Rajadnye, former chief operating officer and president of Piramal Enterprises Ltd's consumer products business, to head Integrace.

In January 2020, True North, via Integrace, acquired Glenmark's gynaecology business in India and Nepal for Rs 115 crore (about $16.2 million at the time) in an all-cash deal.

In October 2021, Temasek signed a definitive agreement to invest Rs 540 crore ($73 million then) in Integrace. True North partially offloaded its stake in this transaction for about Rs 240 crore, but retained its majority holding.

True North and Temasek held a 55.36% and 43.91% stake in the company, respectively. The remaining stake was held by the company's outgoing CEO Kedar Rajadnye. Based on the reported valuation of Integrace in the latest transaction, the two investors' stakes would be valued at Rs 664 crore and Rs 527 crore, respectively.

This indicates that True North would generate a multiple on invested capital (MOIC) of 2x and an internal rate of return (IRR) of around 11-12% in rupee terms from its Integrace investment, VCCircle estimates show. This is well below the 20% IRR that PE firms typically chase in local currency. In dollar terms, the annualised returns would be around 6% because of the rupee's depreciation.

Meanwhile, Temasek would take a small haircut in rupee terms and book an even bigger loss in dollar terms at the reported valuation.

Deal in the making

VCCircle reported in 2024 that Integrace's principal shareholders were negotiating with multiple family offices to divest a stake worth Rs 700-800 crore through a secondary transaction. This deal was to provide partial exits to Temasek and True North, according to VCCircle's reporting at the time. Earlier this year, The Economic Times reported that Warburg Pincus was in advanced talks to acquire Integrace for about Rs 1,200 crore.

The drugmaker started seeing a drop in revenue in FY25, even as it posted a thin profit after years of making losses, due to high attrition rates among its medical representatives and inventory correction. Integrace's standalone revenue decreased by over 5% year-on-year to Rs 234.7 crore in FY25, while it generated a net profit of around Rs 3 crore, an improvement from a loss of Rs 4.3 crore the year before, data from VCCEdge showed.

In the last fiscal year, these issues likely worsened, VCCircle reported earlier this year. Preliminary figures showed the company generated revenue of Rs 87.2 crore with an EBITDA loss of Rs 8 crore in the first half of FY26. Should the revenue run rate hold, Integrace's net sales would likely decline by 25% year-on-year to Rs 174.4 crore in FY26.

However, analysts expect the effect of attrition and inventory correction to be temporary, with recovery in revenue growth likely to be seen in FY27.

Published by HT Digital Content Services with permission from VC Circle.