Of the $50 million round, approximately $37 million will be primary capital with an issue of new shares. The rest will provide a partial exit to US-based investor Gray Matters Capital and a complete exit to Hyderabad-based investor Caspian Advisors, according to the first person mentioned above. Both the investors together hold about 86% of ISFC while the management and employees hold the rest. Final Reserve Bank of India (RBI) approval is pending for the transaction, on which Deloitte India was advisor. IFC, which had committed to bring in $15 million equity, will invest another $15 million through a debt transaction. The funds raised will be used to support ISFC’s loan book growth, the source added.
The RBI hadn’t approved an acquisition bid by Manappuram Finance for ISFC last year. Homegrown private equity fund Kedaara Capital had also been in discussions last year to acquire a majority stake in ISFC that didn’t materialise. Founded in 2008, Hyderabad-based ISFC lends to private schools, affordable schools, vocational institutes and coaching classes to help them build infrastructure. ISFC has a presence in 15 states and serves more than 2.6 million students through over 4,500 institutional clients. It has a countrywide footprint spanning 155 locations through a hub-and-spoke model with over 300 employees. ISFC had assets under management of Rs 560 crore as on March 31. Its competitors include Bengaluru-based school finance company Thirumeni Finance, which operates under the Varthana brand, Shiksha Financial Services and Auxilo Finserve.
ISFC chief operating officer Ankur Agarwal didn’t respond to queries; neither did spokespersons at ADB and Grey Matter Capital. CX Partners and IFC declined to comment. The education financing segment has seen a number of significant private equity investments in the recent past.
In April last year, homegrown private equity firm ChrysCapital led a Rs 350 crore ($55 million) Series C funding round in Bengaluru-based Varthana. The latter had raised Series A funds from Credit Suisse banker Vikram Gandhi and Genpact founder Pramod Bhasin, while other investors include Elevar Equity, LGT Venture Philanthropy, Omidyar Network and Kaizen Private Equity.
Recently, Shiksha Financial Services raised Rs 30 crore by issuing non-convertible debentures to Northern Arc Capital and Netherlands-based impact investment fund Triodos Investment Management. Other investors in Shiksha include private equity firm Zephyr Peacock, Aspada and the Michael & Susan Dell Foundation. In March 2018, Auxilo Finserve had raised Rs 37.5 crore from sugar manufacturing company Balrampur Chini Mills.