Blackstone is looking to invest about Rs 3,200 crore ($450 million) to help Ranjan Pai of the Manipal Group acquire Naresh Trehan’s Medanta Hospital for Rs 6,000 crore, said people with knowledge of the matter.
The world’s largest private equity firm is capitalising the Pai family’s privately held, wholly owned umbrella entity Manipal Education & Medical Group (MEMG). Pai owns 60% of Manipal Hospitals through the promoter holding company, with TPG and Temasek owning the rest.
These existing investors are also planning to proportionately infuse primary capital to retain their shareholding. TPG had invested about $146 million in February 2015 in MEMG for a 22% stake while Singapore’s investment company Temasek owns 18% of both Medanta and Manipal.
Blackstone’s structured equity investment will have a pre-agreed return, with a base rate and a subsequent ‘ladder mechanism’ based on financial parameters following the acquisition. This is likely to be a five-year facility.
Pai’s discussions with Trehan are said to be in the final stages. The ongoing due diligence is also expected to be completed in the next two weeks, following which the binding documentation process will begin.
The acquisition is expected to be completed by March end, giving Pai a much-needed presence in the north. Blackstone is said to be conducting due diligence independently.
Pai and Blackstone declined to comment.
Pai-led Manipal Hospitals will be buying out the shareholders of Global Health, the entity that owns Medanta Hospitals, in an all-cash deal, said the people cited above. ET had reported on November 23 that both sides are inching closer to a deal.
“The final quantum of investment from Blackstone will be dependent on the deal math and how much the other investors finally agree to put in. Pai has a $450 million Blackstone commitment, subject to diligence,” said an executive on condition of anonymity.
Medanta founder, renowned heart surgeon Naresh Trehan, his family members, and co-founder Sunil Sachdeva own 55% of the company. Once the deal is closed, it will mark the exit of PE fund Carlyle from its five-year-old investment in Medanta. The buyout fund had acquired a 27% stake from US-based Avenue Capital in 2013 at a valuation of $600 million. Medanta, founded in 2009, operates super specialty hospitals and clinics in Gurgaon, Lucknow, Indore, Ranchi and Sri Ganganagar.
TREHAN MAY STAY ON
Price controls imposed by the government on medical devices and demonetisation have hit Medanta’s revenue. Privately held Global Health posted sales of Rs 1,278 crore in fiscal 2017, down from Rs 1,384 crore the year before. Profit after tax fell to Rs 54 crore from Rs 175 crore. The group had total debt of Rs 182 crore at the end of FY17.
“Medanta has been facing operational challenges in the last two years,” said one of the persons cited above. “The Manipal management will have to step in and fix it once the acquisition is completed.”
Trehan is likely to stay on after the transaction and lead the transition process, said the people cited above.
Privately held MEMG owns and operates 10 multispecialty hospitals in Maharashtra, Karnataka, Andhra Pradesh, Tamil Nadu and Goa. It also manages five teaching hospitals in Karnataka and Sikkim, as well as several fertility clinics across the country. This latest move follows its failed bid to buy Fortis Healthcare NSE 0.00 %.
Malaysia’s IHH Healthcare, which won the Fortis bid, had also explored a bid for Medanta and offered a price of Rs 5,800 crore, according to sources.
HOSPITAL VALUATIONS
Blackstone, which manages $472 billion of assets globally, has invested about $9 billion in India till date in real estate and private equity but increasingly its structured capital solutions — both equity and debt — business is gaining traction as liquidity dries up following last year’s default by Infrastructure Leasing & Financial Services (IL&FS).
Its so-called Tactical Opportunities (Tac Opps) investing platform seeks to capitalise on global investment opportunities that are time-sensitive, complex, or in dislocated markets where risk is perceived to be mispriced. In India, the firm has fused the traditional PE and Tac Opps teams under Amit Dixit for the non-real estate segment. Blackstone has a strong presence in India in consumer, IT and financial services but not in healthcare. In 2013, it sold its stake in Pune-based drug maker Emcure Pharmaceuticals to Bain Capital.
Source: Economic Times