Early last month, India’s leading private hospital chain, Fortis Healthcare—in which brothers Malvinder and Shivinder Singh are promoters—consummated the acquisition of Singapore-based Fortis International for $ 665 million (around Rs3,270 crore), an entity which the brothers own in its entirety.
However, the deal, which catapulted Fortis into becoming the largest corporate hospital entity in the developing world did not impress the markets much. Fortis Healthcare’s share price plummeted, a few months after the acquisition announcement. “The worth, the soundness, and the profitability of the acquired businesses remain unclear”, stated a Mumbai based stock market analyst, reacting to the announcement.
The sentiment remains much the same even today if a February 13 investor note from Citi is any indication. “The (Fortis) stock has taken a beating after its decision to buy Fortis International and valuations appear undemanding. However, any material re-rating is unlikely till investors get more details on financial and operating parameters of the acquired overseas assets”, Prashant Nair, Citi analyst points out.
What analysts are referring to are a dizzying array of diverse acquisitions in healthcare that Fortis has made all over the globe, from Hong Kong to Sri Lanka, within a span of a year and a half.
Why would Fortis want to put money down in far flung entities in the first place? "Healthcare assets in emerging economies are seen as a safe bet by sovereign funds and pension funds from the developed countries. Aggregation of quality healthcare assets can thus add tremendous value. Fortis attempts to acquire healthcare assets in Asia Pacific should be seen in this context", said an investment banker.
This strategy of aggregating assets, while new, ultimately has its roots in the company’s ‘Singapore obsession,’ a strategy that didn’t in fact go according to plan but ended up giving birth to the current one.
Vaulting ambition
With annual revenues close to Rs1,000 crore, Fortis Healthcare was a minnow in March 2010, when for a brief period, it acquired management control over Singapore’s Parkway Holdings, one of Asia’s prestigious and biggest hospital chains, with revenues four times bigger than that of Fortis. Fortis’ 24 per cent controlling stake in Parkway also saw its promoter Malvinder Mohan Singh shifting to Singapore as Parkway chairman leaving the company’s predominantly India business in the hands of younger brother Shivinder Mohan Singh in April that year.
The romance with Parkway lasted just three months as Parkway’s second largest shareholder—Malaysian government owned investment fund, Khazanah—outbid Fortis’ statutory open offer to acquire Parkway shares it did not own. By July-end that year, Fortis sold its stake in Parkway to Khazanah for a premium, pocketed a profit of roughly Rs400 crore, and snapped its ties with Singapore’s prestigious healthcare entity.
| FORTIS’ FAR FLUNG, BRAND NEW EMPIRE Fortis has gone on a tearing acquisition campaign in a span of just over a year | |||||
| Acquired asset | Industry vertical | Ownership (%) | Positioning | Month of acquisition | Mar-11 Revenue (100%) |
| Dental Corporation | Dental practices | 58 | Australia’s largest operator of dental practices | Jan ‘11/ May ‘11 | $230mn |
| Quality Healthcare | Primary healthcare | 100 | Largest primary integrated healthcare service provider in Hong Kong | Nov ‘10 | $143mn |
| Hoan My | General hospitals | 65 | Amongst the largest hospital chains in Vietnam | Aug ‘11 | $26mn |
| Srl Dubai & Srl Diagnostics | Diagnostics laboratories | 100 & 82.5 | Premier pathology lab catering to outsourcing market in UAE and GCC | Feb ‘11 | $2mn |
| Tortis Hospital | Specialty centre | 100 | Yet-to-be commissioned Greenfield hospital in Singapore | Feb ‘11 | Greenfield (Under construction) |
| Lanka Hospitals | Sri Lankan hospital | 28.6 | Sri Lanka's leading tertiary care hospital | Mar ‘11 | $30mn |
| RadLink- Asia Pte | Diagnostic services | 85 stake | Outpatient diagnostic and molecular imaging chain in Singapore | Feb ‘12 | Undisclosed |
| Source:Fortis | |||||
But that was not the end of its Singapore links—in fact, it was just the beginning. “To me, my experience with Singapore really started with Parkway,” says Fortis chairman Malvinder Mohan Singh. “When I was there as the Chairman of Parkway, I began to understand Asian healthcare opportunities, the supply and demand gaps, the needs, the markets, the segments, the mix of the emerging and developed (healthcare) markets within that area. I realised that I am right, there is a need, there is an opportunity, it makes sense, and we can do it. And if we do it, we will have a head start,” he adds.
This meant reconciling with being pipped at the tape by Khazanah and focusing on another plan which, two years and a string of acquisitions later, has boosted the estimated combined revenues of the Group to close to Rs5,000 crore, marginally lower than Parkway’s estimated revenues of Rs5,500 crore.
These revenues come from what appears to be an unwieldy global sprawl of businesses that could have tremendous synergies with each other. “We have capability in primary healthcare which is driven out of Hong Kong, a little bit in Vietnam and with Radlink acquisition even in Singapore,” explained Malvinder Mohan Singh. “We also have secondary healthcare—day care or specialty care as I would call—in Australia, New Zealand, Singapore and to some extent in India now with C-Doc (diabetes) and Rencare (dialysis). All in all, that makes it six countries,” he added listing several other businesses in West Asia and Sri Lanka. The idea, says Singh, is to cross pollinate its strengths in different healthcare verticals and go deep into those markets where they are not currently present.
Global presence
From being a leading Indian player with 38 owned, managed and planned hospitals within the country in 2009, Fortis today boasts of 74 healthcare facilities around the world that offers a bouquet of services such as primary care, diagnostics, speciality day care centres, secondary and tertiary hospitals, a model very similar to Parkway’s. It has significant investments in nine countries versus Parkway’s seven. “Each of these acquired businesses is a market leader in itself. They have been growing during the last three to four quarters. The margins are also growing. The geographic footprint Fortis has created today covers almost three billion people”, says Vishal Bali, Global CEO of Fortis who was instrumental in building Fortis’ international business from scratch.
Bali feels that the investment community is bound to respond more positively once detailed disclosures are made on the performance of the combined entity during the March quarter results. “We have to look at (the soundness of the acquired businesses) from the context of emerging trends in global healthcare market”, he adds.
Despite the frenetic speed of recent acquisitions, Singh says he’s in no great hurry for all of his investments to begin firing simultaneously. “It will take time because each of these countries, the markets are different,” he says. “So the pace of doing this will also be different. Developed markets like Australia, Singapore and Hong Kong are already corporatised. So, we will be fast to go there with verticals (such as daycare specialties). You will have to identify and assess the market, the need, the demand and supply and what the environment is and decide what you want to do. So you will not blindly do it everywhere,” explained Singh. The company will continue to have Singapore as its global operations hub.
Consequently, Fortis is in the process of building up scale in several verticals it owns in diverse geographies today. Quality Healthcare, a wholly owned Fortis subsidiary, is a leader in primary health and daycare services in Hong Kong, where according to Bali the company will be looking at a hospital opportunity in the city to integrate its healthcare businesses in that region. It is also hoping to have a close watch on the Chinese healthcare market for a footprint in the future. Fortis also recently opened daycare specialties in India under two brands C-Doc (for diabetes care) and Rencare (dialysis) which reveals the manner in which it intends to unlock synergies.
Making smart investing bets in healthcare is one thing. Growing and managing them is an entirely different cup of tea, especially if your businesses are a global sprawl that consists of a plethora of different cultures, business practices, rules and regulations and operating environments. Singh’s cross pollination plans, therefore, are easier said than done.
Yet, considering Singh’s tenacity in deal-making and eagerness to extract maximum value from his companies and investments, he just might pull it off.
