Ailing Indian hospitals warrant healthy bid action
Eager buyers are doing the rounds with doctors in India. U.S. private equity firm TPG has backed one of three rival offers valuing scandal-hit Fortis Healthcare at up to 83 billion rupees, or $1.3 billion. The bidding for the owner of 31 hospitals across 10 cities in the country underscores the feverish demand for private medical care.
New Delhi’s lack of investment in public healthcare is a big factor for the frenzy. India spends just over 1 percent of GDP, the lowest of all the so-called BRIC countries. That should improve after implementation of the most recent budget, which envisions providing insurance for the poorest 500 million people. The state accounts for the bulk of hospital beds, but the quality of care is inconsistent.
As a result, private operators are driving expansion of healthcare revenue projected to grow at a 23 percent annual rate to $280 billion by 2020, according to India Brand Equity Foundation, a government-established trust. A growing middle class has led more Indians to seek treatment for problems such as high cholesterol and obesity. Lower costs also explain why top private hospitals, which tend to provide better care, attract patients from abroad.
Fortis’ portfolio would be hard to replicate. Suitors are circling after lenders seized equity pledged by the founders, the Singh brothers. Various fraud investigations complicate matters and help explain why the most compelling bid, a binding 155 rupees a share from rival Manipal Hospitals and TPG, involves a complex structure that attempts to ring-fence any fallout.
IHH Healthcare said on Monday that Fortis declined to engage over its higher offer. It is possible the Malaysian company could make a hostile bid, having stalked the company for more than a year. Two prominent Indian investors also have sensed a golden opportunity, offering to inject cash in exchange for a large stake, which could help Fortis stave off any potential liquidity problems. Their plan might work alongside Manipal-TPG’s offer.
Fortis is already trading at 19 times expected EBITDA, a substantial premium to peers including top rival Apollo Hospitals. India’s healthcare system may be poorly, but buying into it will require financial vigour.
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