Buyout specialist India Value Fund Advisors emerges frontrunner.
It may soon be another big payday for the private equity (PE) veterans at Actis. Six months after initiating the negotiations, the UK-headquartered fund seems set to sell its controlling stake in Sterling Hospitals to their fellow buyout specialists from India Value Fund Advisors (IVFA).
Actis holds 80 per cent in Sterling, a Gujarat-based, multi-speciality, hospital chain with six centres. The rest is held by Girish Patel, the former promoter of Paras. Actis was also the main investor in Patel’s flagship, Paras Pharma. Earlier this year, they made a four-fold profit by selling their majority stake in the company, making it one of the largest PE exits in India.
| STERLING EXIT |
| * IVFA likely to buy out controlling stake in Sterling Hospitals from Actis |
| * Actis owns 80% in hospital chain, former Paras promoter Girish Patel owns residual 20% |
| * Sterling is Gujarat based multi-speciality hospital chain |
| * Actis stake valued at Rs 430 crore |
| * IVFA, Parkways-Khazanah combine final short-listed candidates |
In June this year, Actis appointed JM Financial to help find a buyer. According to three independent sources, IVFA has emerged front-runner, after many suitors opted out of the race or put in conservative bids. Though the bids have been revised due to the current slowdown and volatility in the markets, say the sources, Actis’ stake is likely to get valued at upwards of Rs 430 crore.
The initial valuation of Sterling’s chain of hospitals done by Actis is believed to have been around Rs 650 crore.
Parkway Holdings, the Singapore-based hospital operator owned by Malaysia’s sovereign investment arm, Khazanah Nasional, the South India-based Manipal Health Enterprises, the Emami Group-backed AMRI Hospital, Fortis Healthcare and DM Healthcare, a Dubai operator backed by The Carlyle Group, were among other shortlisted candidates after several rounds of bidding and elimination. IVFA is believed to have edged out the Parkway-Khazanah combine in the last leg, added a source on condition of anonymity.
When asked, J M Trivedi, head of South Asia at Actis, told Business Standard: “As a matter of policy, we do not comment on market speculation.” IVFA managing partner Vishal Nivetia did not respond to mails till the time of going to press. Rajiv Sharma, CEO, Sterling Hospitals, said, “As a policy, we do not comment on matters related to shareholders.” Girish Patel, chairman, Sterling Hospitals, said: “I cannot comment until any deal is officially announced. You should contact Actis, as they are running the process.”
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Background
Sterling has 1,027 beds in four multi-speciality tertiary care hospitals, one each in Ahmedabad, Vadodara, Rajkot and Bhavnagar. It has secondary care hospitals in the Mundra special economic zone and Adipur, both in Kutch district.
Those following the negotiations peg Sterling Hospitals’ annual revenue at Rs 250 crore a year and an earning before interest, tax, depreciation and amortisation of Rs 25-30 crore. In 2006, Actis invested $15.5 million (Rs 69 crore) to buy 41 per cent in Addlife Medical Institute, which owns Sterling Hospitals. It later raised its stake to 80 per cent. The same year, Actis bought around 25 per cent in Paras for $45 mn (Rs 202 crore). It later raised the holding to 63 per cent, with total investment touching $150 mn (Rs 540 crore). Four years later, in 2010, it sold its entire stake for $726 mn (Rs 2,100 crore). Before this, Sterling Addlife was demerged from Paras Pharma.
Most analysts in the healthcare sector say Sterling offers an established hospital chain to expand and consolidate nationally in a highly fragmented market. More, most pan-Indian players are not doing very well in Gujarat, where local companies – even with single city operations – have emerged stronger. The national players came late, in 2006-07, and it has been difficult for them to scale up. Sterling is the only one with some size. For any buyer, a presence in Gujarat will also mean access to a high-growth market.
Apollo has a nominal presence in the state. Wockhardt has a sizeable market share, with hospitals in Rajkot, Surat and Bhavnagar. Consolidation in the industry is important, as these two are now achieving critical size. Both Apollo & Fortis have 8,500-plus beds and run at least 55 hospitals through the country.
Established over a decade earlier, IVFA is one of the most experienced PE firms operational in India, with $1.4 billion under management across four funds. Over the years, it has invested in companies as diverse as HDFC Bank, Meru Cabs, Fame, Trinethra Retail, Radio City and Biocon. They’re also specialists in small buyouts in Indian PE, having been involved in five such buyouts, with a total payout of $179.4 million.
They’ve been active investors in healthcare, too, with past investments in Care Hospital Chain. IVFA had also acquired Dr Moopens Group (DMG), which has presence in West Asia and India. DMG has been providing quality healthcare services in the Gulf region for 20 years, via a chain of successful primary care clinics, pharmacies and secondary care hospitals. It has large presence in Kerala through the Malabar Institute of Medical Sciences.
It is not clear, however, if IVFA will be acquiring Sterling on its own or by using one of their portfolio companies like DMG Healthcare.
The private hospital segment is estimated to reach $54 billion by 2014, by growing at a compounded annual rate of 20 per cent from the present level of $26 bn, according to a recent study by the Associated Chambers of Commerce and Industry of India. A study by Ernst & Young says India will need another 1.75 mn beds by the end of 2025. At present, the country has one hospital bed per 1,000 people, against the global average of four beds per 1,000 people.