M & A CritiqueHealthcare has become one of India’s largest sectors ‐ both in terms of revenue and employment in the country. The industry comprises hospitals, medical devices, clinical trials, outsourcing, telemedicine, medical tourism, health insurance and medical equipment. The healthcare industry is growing at a tremendous pace due to its wide‐reaching coverage, services and increasing expenditure by public as well private players. India’s primary competitive advantage over its peers lies in its large pool of well‐trained medical professionals. Also, India’s cost advantage compared to peers in Asia and Western countries is significant ‐ cost of surgery in India is one‐tenth of that in the US or Western Europe.
Mergers rarely happen in the healthcare industry. The biggest merger in the health care industry was of Fortis Healthcare (India) Ltd, which was the country’s second-largest hospital chain, with Fortis Healthcare International Pte Ltd.
The Apollo Health and Lifestyle Limited (AHLL), a wholly owned subsidiary of Apollo Hospitals Enterprises Limited (AHEL) has acquired Nova Specialty Hospitals (NSH). The acquisition fits the growth strategy of AHLL, providing it a larger footprint, including in many markets where the company currently has no presence. Apollo would acquire over 350 beds and 500 doctors as a result of the buyout of Nova Specialty Hospitals. Nova can generate an annual business of Rs 500 crore in five years from short hospital stays and day surgery centres. Nova has 11 centres in eight cities, while AHLL has over 100 operational centres in India and west Asia. AHLL is aiming to create a business of Rs 500 crore in 5 years in the space of multi‐specialty short stay/day surgery centres.
THE DEAL:
The deal size will be in the range of Rs 135‐145 crore subject to final closure. The funds for this acquisition will be raised by Apollo through a mix of debt and equity. Apollo will re‐launch these centres with new branding, an expanded menu of services and quality systems built on Apollo’s deep expertise in the hospital space. The target of the Apollo is to achieve revenues of Rs 2,000 crore by 2020, with 1,000 centres.
About Hospitals:
Apollo Health and Lifestyle Limited (AHLL) :
Apollo Health and Lifestyle Limited (AHLL), a wholly owned subsidiary of the Apollo Hospitals Group, is headquartered in Hyderabad. It was founded in 2002 with the aim “to bring healthcare of international standards within the reach of every individual.” To achieve this, AHLL has established a standardised large network of Apollo clinics across the country with over 90 clinics operational all over India. As a part of the Apollo group’s objective to expand its operations, a number of similar clinics will be set up overseas as well.
The Apollo Group is uniquely positioned to continue to be the largest corporate player in the healthcare sector in South Asia. Apollo Clinic addresses the day‐to‐day healthcare needs of families, community, corporate houses and society and aims to turn the first port of call for any healthcare needs. The clinic offers a complete range of services like ‐ consultation with specialists, the state of the art medical equipment to ensure accurate diagnostic reports, well‐stocked 24‐hour pharmacy. The ambience and environment of the clinics are non‐ hospital to make the experience soother. All this with the experience, expertise, skills, warmth and care unique only to the Apollo Hospitals make a visit to Apollo Clinics a truly satisfying experience.
Apollo Hospitals Enterprises Limited (AHEL) :
A venture that started and nurtured by Dr. Prathap C Reddy, the founder Chairman of Apollo Group, until the point of inflection happened in 1983.
Apollo Clinic addresses the day‐to‐day healthcare needs of families, community, corporate houses and society and aims to turn the first port of call for any healthcare needs. The clinic offers a complete range of services like ‐ consultation with specialists, the state of the art medical equipment to ensure accurate diagnostic reports, well‐stocked 24‐hour pharmacy. The ambience and environment of the clinics are non‐ hospital to make the experience soother. All this with the experience, expertise, skills, warmth and care unique only to the Apollo Hospitals make a visit to Apollo Clinics a truly satisfying experience.
Apollo Hospitals Enterprises Limited (AHEL) :
A venture that started and nurtured by Dr. Prathap C Reddy, the founder Chairman of Apollo Group, until the point of inflection happened in 1983.
Today, with over 8500 beds across 50 hospitals, and a significant presence at every touch‐point of the medical value chain, Apollo Hospitals is one of Asia’s largest healthcare groups. Commenced as a 150-bed hospital, today the group has grown exponentially both in India and overseas. Its growth is often said to be synonymous with India emerging as a major hub in global healthcare.
Apollo Group, today, is an integrated healthcare organization with owned and managed hospitals, diagnostic clinics, dispensing pharmacies and consultancy services. In addition, the group’s service offerings include healthcare at the patient’s doorstep, clinical & diagnostic services, medical business process outsourcing, third party administration services and health insurance. To enhance performance and service to customers, the company also makes available the services to support business, telemedicine services, education, training programs & research services and a host of other non‐profit projects.
Nova Specialty Hospitals :
Nova Specialty Hospitals is a fully equipped medical facility. It brings cutting edge medical technology and internationally trained physicians under one roof to give patients easy access to quality, affordable healthcare.
Established in 2009, Nova Specialty Hospitals’ mission is to provide world‐class surgical care that is accessible and at an affordable cost. Having pioneered the concept of short‐stay surgical care in India, Nova focuses on providing the finest quality care for patients from specialized doctors while increasing operating efficiency.
Synergies :
● The acquisition will see Apollo entering new markets such as Mumbai, Jaipur, and Kanpur.
● AHLL is currently present in the secondary care segment through the Day Surgery & Cradle formats. This acquisition will enable AHLL to significantly expand its’ footprint and will catapult it into a leadership position in this segment of healthcare.
● There is a synergy between NSH format and the tertiary care hospitals and Apollo want to capture these synergies to the benefit of the patients and doctors.
● Nova Specialty Hospitals is a chain of 11 Short Stay Surgery Centres, over 800 surgical procedures, 500 doctors. All centres are equipped with advanced medical facilities backed by good surgical teams. These centres are designed to provide convenient facilities for patients to undergo planned surgeries. In addition, AHLL will strengthen the service offerings in these centres by introducing Apollo’s Preventive Health Checks and also establishing Sugar Clinics.
● The acquired chain of Nova Specialty Hospitals is spread over 8 cities and will add to the Apollo network 45 Modular OTs, over 350 patient beds, with an average 20,000 sq.ft of builtup space in each centre. These centres provide both inpatient and OPD services with 60% of the procedures currently being done as day procedures.
Why Divested & acquisition?
NSH business was burning cash and therefore the board decided to divest the business. As Apollo’s similar business is incurring losses and probably because of size and geographical reach, it found it prudent to acquire the similar business of Nova so that the synergies in it may make turnaround faster.
Sequence of Transactions :
1. The Nova Medical Centres Private Limited and Nova Medical Centres NCR Region Private Limited will transfer by way of slump sale 100% of the NSH tangible and intangible assets to the company and
2. Then Apollo would buy 100% shares of the company.
Conclusion :
Nova Specialty Hospitals are famous for short stay surgeries. The average length of stay for a patient is coming down from 4.5 days a few years back to about 32 hours. The biggest advantage of short-stay surgery is its convenience for the patient and higher revenue per bed per day for the hospital. By this acquisition, AHLL will enter this unique healthcare delivery model and will be able to deliver high-quality healthcare, through enhanced service delivery models, which will benefit the entire health ecosystem. The question is whether Apollo’s management team will implement short stay surgeries/day surgery centres in one of its hospitals? It is not clear that whether NSH will be merged into AHLL or not. As hospital industry comes under service industry only time will tell whether the combined entity will perform and meet patients’ expectations.
