Everstone to scout for more assets in software services on the back of AI boom, stable valuations

Mint

22-05-2025

Mumbai: Everstone Capital expects to increase investments in software services companies as artificial intelligence-led disruption and a normalisation in valuations create a larger pool of investible opportunities in India, top executives at the firm told Mint.
'While we have deployed a meaningful amount of capital in software, we are seeing more companies within the $30-70 million revenue mark in India that believe in measured growth with good economics and we will find more such assets to address that segment," Sandeep Singh, managing director at Everstone, said in an interview. He did not specify any companies.
The investment firm bought a majority stake in India-origin SaaS startup Wingify for about $200 million earlier this year. Wingify has an annual recurring revenue exceeding $50 million and gets about 90% of its revenue from the US and Europe.
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The disruption by AI will also alter the way service businesses function as they transition to an outcome-based business model from one that depends on user numbers, Singh explained.
'We are most excited about the converging themes that will arise at the intersection of service and software, which will mean that you will see many more hybrid service software companies emerging and we are seeing this across our portfolio," he said. 'Even within the business process outsourcing segment, we are increasingly seeing a new breed of companies innovate around creating AI agents. However, this will be a hybrid approach with a human interaction in the loop as there is still a significant amount of judgement and discretion that is required around critical business processes."
Stable valuations
Investors have been encouraged by the software services sector in recent months as valuations stabilise compared to the pandemic years when capital was more abundantly available even for companies commanding a premium.
'There has been a significant normalisation in valuations on the software side, while the services segment has largely been rational on that front. Except for AI, which is still in its early days where there is still some euphoria, I think other pockets of technology are more reasonable than they used to be," Singh said.
Singh said there is a critical mass of software companies at reasonable scale that are profitable or can be taken to profitability through several ways including an entry into global markets while growing at a sustainable pace. In scaling up its portfolio companies overseas, Everstone helps them to transition from product-led growth and founder-driven strategies to institutionalised go-to-market strategies.
'Although Indian companies are strong in technology, they often tend to hit an air pocket of sorts beyond a certain scale when they must go beyond India to further expand," Singh said.
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Several companies that Everstone acquired including Mediamint and Acqueon have leveraged the investment firm's expertise in developing a set of capabilities and a set of networks and resources to diversify beyond their domestic base. Wingify is also set to scale up overseas.
As Everstone looks to deploy capital for its fifth fund, it is evaluating European businesses that operate in India.
'Our approach to India also includes viewing companies in the country that contribute globally. We are also looking at global companies where a meaningful part of their revenue comes from India," Avnish Mehra, vice chairman of Everstone Capital, said in the joint interview.
With more than $8 billion assets under management, the firm focuses on mid-market, control growth, and cross-border opportunities across technology, healthcare, financial services, and industrials. The company's portfolio includes Translumina Therapeutics, Softgel Healthcare and Calibre Chemicals.
India optimism
Its fourth fund raised about $500 million in 2023, the third fund $731 million in 2016, the second fund $580 million in 2010 and the first one in 2006 raised $425 million. While Mehra did not disclose the exact details on the next fund, he said it will largely have the same strategy, barring some sectoral thematics.
'We will spend more time on sectors such as manufacturing and financial services while having a more nuanced view of healthcare and tech on the back of evolving dynamics while the rest remains the same," he said.
Mehra explained that investors are largely optimistic about India despite macroeconomic volatilities as exits have been robust in the country. He added that the biggest challenge for Indian private equity players is to be able to deliver dollar IRRs (internal rate of return) through rupee investments.
'However, we have addressed this by having a meaningful portion of our portfolio that generates dollar revenues and rupee costs and some of our investments in pharma and tech are great examples of that," he said.
Everstone, which operates the master franchise of Subway restaurants in India, is looking to sell some of its stake in the fast-food chain's local operations as part of a $100 million fund raising, Mint reported last month. The firm returned about $1.2 billion through exits in the past five years and over $2 billion including co-investments, Mint reported in 2024.
The investment firm exited IT services business Everise when it sold its stake to Warburg Pincus. Some of its other exits include stake sales in SJS Enterprises and a $180 million partial stake sale in Restaurant Brands Asia, which operates Burger King in India and Indonesia.
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'I don't see a challenge in taking some of our companies public. In this market, there may be a 5% or 10% discount but that is not an issue for those that are of decent quality," Mehra said. 'Some of our industry peers have also been using exit methodologies such as continuation vehicles, which we have not yet leveraged, so there are other pools of capital that are now revolving around India which, if required, we will use to continue driving our DPI," he concluded.
Continuation vehicles are funds that allow limited partners to exit while allowing investment firms to remain invested in high-performing portfolio companies. DPI is the ratio of distributed to paid-in capital, a measure of the cash paid to investors relative to the total capital they initially invested in a fund.