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Paras Pharma's PE investors to sell stake to outside promoter

For the Patels of Ahmedabad, news about Paras Pharmaceuticals being put on the block has come as a shocker. Leaders of the community, originally farmers who became successful businessmen over generations, are loathe to the idea of a Gujarati company nurtured and built over so many years passing into the hands of people outside the community.

“It hasn’t happened before. No big Gujarat-based company has ever been sold like this,” says Aroon Patel, who runs a small engineering unit in the city.

In the backdrop of such strong local sentiments, Girish Patel’s nod to a deal between Actis and Sequoia Capital, two private equity firms who together own 70% shareholding, and an yet unknown suitor, seems a bit out of place. But it also brings to fore the perils of inducting PE firms on board, and the usefulness too.

If Patel and his younger brother Devendra sell their 30% stake today, they will walk away with Rs 1,350 crore, on a total company valuation of Rs 4,500 crore. Considering that their father, Naranbhai Patel, had started the company with a seed capital of Rs 8 lakh, that would be a deal!

Girish Patel declined to meet SundayET, saying he was busy with his son’s wedding scheduled for November. He also sounded upset about the news being leaked to media—he didn’t blame anyone though, certainly not his partners. “I prefer to be silent on this matter. I do not comment on market speculation,” he said.

Four years ago, Patel was on a high. He was telling the media about his desire to make Paras a Rs 1,000-crore company by 2010. He was planning new product categories—haircare and deodorants, et al—which were different from his current portfolio of OTC drugs and bodycare. He was even planning to shift his company’s headquarters from an old building along the rail tracks that ran acrosss the city to a new, more modern location (that’s where Paras is housed now). He was also consolidating and growing his hospitals business that operates under the Sterling brandname. Then came, Actis.

In the summer of 2006, the private equity fund negotiated a deal with a handful of investors including Girish Patel’s second brother Darshan Patel to pick up over 23% shareholding in Paras for $43 million. It was believed that Darshan sold out because he had a daughter (and no son) and as per their family traditions, the business would be passed on to sons alone. The brothers found a way to give Darshan’s daughter her share of the family’s fortunes.

In those days, PE was hot money. Girish Patel also needed funds to grow his businesses. He then cracked a deal with equoia Capital India for investing another $12 million in Paras Pharma in October the same year. Actis later increased its shareholding to 68%. Soon they were taking management decisions, although Girish Patel remained chairman of the company. Darshan Patel says the PE firms no more treated Paras as a family venture. “For them it was pure business, and had to be run professionally. They took bold decisions,” he adds.
Source: Economic Times

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