KKR & Co is all set to make a comeback in the Indian hospital sector two years after its mega exit — it’s most profitable so far — from Max Healthcare as the buyout fund is all set to acquire around 70% controlling stake in Kerala’s Baby Memorial Hospital (BMH) with an investment worth $300 million (Rs2500 crore), said two people aware of the development.
A formal announcement could be as early as Monday.
Kozhikode-based Baby Memorial Hospital is one among the largest hospitals in Kerala with 500 beds across 3 hospitals. One more greenfield project is upcoming along with one that is in final stages of negotiations for a takeover.
Founded in 1987 by K.G. Alexander, who is its chairman & managing director, the hospital provides tertiary care services across multiple specialties. It has over 2000 nursing, paramedical and administrative staff, besides over 300 doctors.
The third largest chain in the state, BMH also has over 40 Medical and Surgical departments, 16 operation theatres, 11 fully equipped ultramodern ICUs and 24‐hours accident and trauma care unit.
KKR plans to ramp up BMH and use it as a hospital platform pan India to acquire and build assets, said people in the know. It’s investment will primarily be in a primary infusion into the company to fund its growth plans as well as a secondary investment to dilute the current promoters who will be operationally running the company.
BMH also runs post graduate DNB courses for doctors. It has full fledged institutions such as The Baby Memorial School of Nursing and the College of Nursing which offer Diploma in General Nursing & Midwifery, B.Sc. in Nursing and M.Sc. in Nursing, under the Indian and Kerala Nursing Councils and University.
In 2019, KKR had given a debt of Rs200 crore to BMH to meet its expansion plans.
Mail, calls, and messages sent to KG Alexander, chairman and managing director of Baby Memorial Hospital, did not elicit any responses, while a KKR spokesperson also did not respond to ET queries.
In the last couple of years, the hospital industry in India has seen PE led consolidation after the multiple acquisitions of large chains such as Manipal Health and other private equity funds.
The playbook for most private equity players in healthcare has been to build a platform privately & then benefit from the rich public market multiples on exit. Typically starting with a smaller business and then growing it both organically and inorganically by doing both greenfield ( using debt) & M&A (using both primary capital & debt).
It has worked in several pockets of healthcare including diagnostics, healthcare services (hospitals) and medical equipment / devices. In each of these areas, typically most of the private deals have been in the 12-16 (x) EV / EBITDA while the public market multiples have been in the region of 25-35 (x) EV / EBITDA.
In FY 24, BMH clocked Rs 120 crore revenue and an EBITDA of Rs 80 crore.
The thesis for most larger private players has been to look at listing these platforms / businesses & monetising some of their stake at the pre-IPO stage, more in the IPO stage and the rest through secondary market share sales over a period of 2-3 years.
KKR, which owned Max Healthcare, along with Mumbai-based Radiant Life Care in 2018, made a full exit in 2022 with a 5x return by selling their minority stake to the institutions such as the Government of Singapore, Monetary Authority of Singapore, BNP Paribas, WF Asian Smaller Companies Fund and WF Asian Reconnaissance Fund.
KKR’s affiliate Kayak Investments had sold the remaining 27.5% stake in Max Healthcare in 2022, for about ₹9,186 crore, in the largest single block deal ever done by any private equity firm in India.
KKR & Co was also keen to acquire up to 48% stake in Manipal Health Enterprises, valuing the South-based hospital chain above Rs 35,000 crore. However, the discussions did not materialise.
In October last year, KIMS Health Management Ltd (KHML), Kerala’s another leading hospital chain, was acquired by Quality Care India Ltd (QCIL). QCIL, backed by PE funds Blackstone and TPG, has acquired about 85% stake in KIMS at Rs3500 crore valuation, while KIMS’ founder promoter Dr MI Sahadulla holds about 15% stake and continues to run the hospital business. KIMS Health has four operational hospitals in Kerala – in Trivandrum, Kottayam, Kollam and Perinthalmanna – with a total capacity of 1,378 beds.
A 2020 Human Development Report showed that India ranked 155th in hospital bed availability with five beds and 8.6 doctors per 10,000 people. The hospital industry will require an investment of around $245 billion over the next 20 years, according to a recent PwC report. India needs to add 3.6 million beds, 3 million doctors and 6 million nurses over the next 20 years, it said.
Source: Economic Times