Healthcare sector M&A deals up 155% in FY19, valued at Rs 7,615-cr: ICRA

Fortis Healthcare, Max Healthcare acquisitions account for 83 per cent of the total value of M&A deals

Rating agency ICRA on Monday said merger and acquisition (M&A) deals in hospitals jumped by 155 per cent in 2018-19 amounted to Rs 7,615 crore as against transactions worth Rs 2,991 crore done in the previous year. 

The two largest transactions involving the acquisition of stakes are - Fortis Healthcare at Rs 4,000 crore and Max Healthcare at Rs 2,351 crore together account for 83 per cent of the value of the deals in the year under review. This is the highest value of M&A transactions in the sector in over five years and thereby creating a new record, said ICRA.

"A majority of the deals involve acquisitions of stake in multi-speciality hospitals rather than a single speciality hospital or hospitality chain and the target companies had a substantial portion of their operations in Metros and tier-I cities. Consolidation is a better option for the players as the gestation period for investments in hospitals is already high due to large up front investments and the longer time needed to ramp-up the utilisation of assets. Further, the recent regulatory actions have increased the gestation period further, thus increasing the funding requirement of the sector and necessitating consolidation," Kapil Banga of ICRA said.

The premium paid in the the acquisitions reflect the healthy appetite for quality healthcare assets from the global investors, despite the recent underperformance of the sector, according to the rating agency. Excluding the largest transaction in the sector - Fortis Healthcare Limited- the growth in value of the transactions done in FY 2019 will be 21 per cent. 

Overall, ICRA maintains a stable outlook on the sector and holds that the performance of the hospital companies has likely bottomed out and the sector was likely to witness an improvement over the medium term, though any incremental regulation may have a transient impact, it said.