Ranjan Pai-led Manipal Hospitals, together with its investors TPG Capital and Temasek, is inching closer to acquiring Medanta hospitals owner Global Health at a valuation of Rs 5,800-6,000-crore, as consolidation frenzy hits Indian healthcare.
The proposal was discussed last week at Medanta’s board meeting that ended inconclusively. But both sides are expected to sign a timebound exclusivity agreement to conduct due diligence early next week, possibly even as early as this weekend, said multiple sources aware of developments.
Medanta’s founder, renowned heart surgeon Naresh Trehan, is likely to retain a sliver of his stake although the final details are yet to be worked out. Trehan, his family members and co-founder Sunil Sachdeva own 55% of the company.
Manipal’s current proposal would also see the complete exit of 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 (about Rs 3,600 crore at that time).
To fund the transaction, both TPG and Temasek will put more money into Manipal and increase their stake. TPG had invested about $146 million, or.`900 crore, in February 2015 in Manipal Education & Medical Group and has a 22% stake. Singapore’s investment company, Temasek, owns 18% of both Medanta and Manipal.
Medanta, founded in 2009, operates superspecialty hospitals and clinics across cities including Gurgaon, Lucknow, Indore, Ranchi and Sri Ganganagar. “Carlyle, which was looking for a higher valuation, has finally agreed on the proposal last week and the Manipal-Medanta deal will go through quickly. The term sheet is expected to be signed in the next 8-10 days,” one of the people said on the condition of anonymity.
Trehan and Pai called the news speculation and declined to comment further. Spokespeople for TPG and Carlyle didn’t comment, while an email sent to Temasek did not elicit any response till press time Thursday.
Medanta has been hit by the price control caps of healthcare devices like stents as well as demonetisation. Privately held Global Health, the holding company of Medanta, posted sales of Rs 1,278 crore in fiscal 2017, down from Rs 1,384 crore the year before, according to company filings. Profit after tax fell to Rs 54 crore in FY17 from Rs 175 crore in FY16. The group had total debt of Rs 182 crore by FY17.
Pai’s Manipal Education & Medical Group (Manipal Group), a privately held conglomerate, owns and operates ten multispecialty hospitals in Maharashtra, Karnataka, Andhra Pradesh, Tamil Nadu and Goa and also manages five teaching hospitals in Karnataka and Sikkim, as well as several fertility clinics across the country.
It also owns and operates a hospital in Malaysia and manages a clinic in Nigeria.
After failing to acquire Fortis HealthcareNSE -0.10 %, Manipal had been scouting for growth opportunities, especially in the North. Malaysia’s IHH Healthcare, which eventually acquired Fortis, had also explored Medanta when the Fortis transaction was shrouded in uncertainty. Like Temasek, TPG too has sharpened its focus on healthcare investments in India since 2016. Its healthcare portfolio in the country includes Cancer Treatment Services International, Bengaluru-based Rhea Healthcare that runs hospitals for women and children under the ‘Motherhood’ brand, and Sai Life Sciences, a drug discovery and manufacturing firm.
Hospital valuations in India have been coming under pressure as price controls, debt and operational expenses rise, leading to widespread consolidation in a hyper competitive market. This despite the sector’s growth potential.
The sector, one of the fastest growing, is expected to advance at a compounded annual growth rate of 22% during 2016-2022 to reach $372 billion by 2022.
Source: Economic Times