Deal may trigger buys in healthcare space

The Max Healthcare-Life Healthcare deal, which saw the New Delhi-based hospital chain being valued multiple times its revenues, may not be a one-off transaction, predict healthcare industry experts.

South Africa’s Life Healthcare has announced it will pay about Rs 516 crore for a 26 stake in Max Healthcare, the hospitals unit of Analjit Singh-led Max India. High valuations that have become a norm in mergers and acquisitions in the domestic pharmaceutical sector, could soon be true for India’s booming private healthcare space also, they say. What has prompted experts to suggest a similar trend in the near future is the increasing demand for quality healthcare and the scarcity of quality providers in the country.

“Given the scarcity of quality assets in the healthcare space, the current players will be able to command a premium,” said Rana Mehta, executive director (healthcare advisory), PriceWaterhouseCoopers.

Mehta feels the attractive investment options will include specialty healthcare sectors such as eyecare and dental care, as private equity players can easily replicate such businesses across the country, unlike building traditional hospital chains. Earlier this week, Eye-Q Super-specialty Eye Hospitals (Eye-Q), another north India-based chain, had announced investments by Helion Venture Partners and Nexus Venture Partners, both India-focused venture capital funds, in that company. With this funding, Eye-Q expects to expand its footprint nationally.

The consolidation of corporate hospitals gained momentum in the last 10 years after former Ranbaxy promoters — brothers Malvinder Singh and Shivinder Singh — went into an acquisition spree to develop their Fortis Hospital chain into the country’s top league along with India’s leading private healthcare player, Apollo Hospitals Group. Fortis’ acquisition of Wockhardt group’s 10 hospitals two years ago for over Rs 900 crore remains the biggest deal in the country’s healthcare space so far. Life Healthcare’s decision to acquire a 26 per cent stake in Max for Rs 516 crore is the largest foreign direct investment in India’s healthcare sector.

“Traditionally, healthcare has been an investment area for private equity players. This (Max-Life Healthcare) deal is the first instance where we find an established healthcare provider investing into another hospital chain,” said Muralidharan Nair, partner at consultancy firm Ernst & Young.

The company’s stock ended Rs 179.55 a share, up 0.93 per cent or 1.65 points, on the Bombay Stock Exchange.

On the National Stock Exchange, the scrip closed at Rs 179.30, up 0.76 per cent.