Singapore state investor Temasek Holdings is buying the minority stake held by two private equity investors in Bengaluru-based Manipal Health Enterprises Pvt. Ltd, three persons briefed on the development told VCCircle.
Temasek is purchasing the stake of Faering Capital and True North, two of the persons said. The deal values Manipal Health, which manages the Manipal Hospitals chain in India and Malaysia, a little above Rs 6,000 crore ($940 million), one of them added.
This will place the deal size around Rs 1,100 crore ($172 million).
True North (previously known as India Value Fund Advisors) had invested Rs 438 crore, mostly for buying a stake from the company’s promoters in 2012. Faering Capital—which is led by Aditya Parekh, son of HDFC chairman Deepak Parekh—had invested Rs 50 crore through a preferential allotment at the same time.
True North is likely to take out close to Rs 1,000 crore while Faering will pull out Rs 100-110 crore, back-of-the-envelope calculations show. This would translate into an internal rate of return (IRR) of around 20%, according to VCCircle estimates.
PE firms chase 20-30% IRR in local currency in India, which would mean benchmark returns for True North and Faering Capital. As first reported by VCCircle, both True North and Faering Capital are raising fresh capital. PE firms tend to showcase profitable exits while raising a new fund.
True North owns around 16.3% while Faering Capital holds about 1.8% of the diluted share capital. TPG is the third PE investor in Manipal Hospitals.
One of the persons cited earlier told VCCircle that other shareholders of Manipal Hospitals, including TPG, continue to hold talks to sell a majority stake to Temasek, but that is part of a larger deal which is expected to be sealed over a period of time.
A spokesperson for Temasek confirmed that the sovereign fund is set to purchase an 18.1% stake in Manipal Hospitals through its subsidiary Sheares Healthcare Management but declined to provide other details. It also declined to comment on a majority stake buy in future, referring to it as a speculation.
True North executives declined to comment. Faering Capital and Manipal Hospitals CEO Ajay Bakshi did not respond to a request for comment. An email query to TPG did not elicit any response till the time of publishing this article.
TPG had invested in the company around three years ago and, unlike True North and Faering Capital, it may not be in a hurry to exit.
The Economic Times had earlier reported that Temasek was looking to buy True North’s 18% stake in the hospital chain at a valuation of $1.2 billion (Rs 7,800 crore).
Manipal Hospitals
Founded in 1991, the company operates 15 multi-specialty hospitals in Maharashtra, Karnataka, Andhra Pradesh, Tamil Nadu and Goa, according to its website. It also manages five teaching hospitals in Karnataka and Sikkim, as well as several fertility clinics across the country.
The chain, which competes with Apollo Hospitals and Fortis Healthcare, also owns and operates a hospital in Malaysia and manages a clinic in Nigeria.
Manipal Hospitals’ consolidated revenue grew at a compound annual pace of 23% between 2013-14 and 2015-16. Its earnings before interest, tax, depreciation and amortisation recorded annualised growth of 30% during this period. The firm clocked revenue of Rs 1,262 crore and EBITDA of Rs 172.2 crore for the year ended 31 March 2016. Its financials for 2016-17 are not yet in public domain.
The deal is likely to value the firm around 30 times its EBITDA for 2016-17, higher than the 25 times valuation for key publicly listed peers.
The company is part of Manipal Education and Medical Group (Manipal Group), a privately held conglomerate focussed on education, healthcare and research. Earlier this year, the parent group partnered with UK-based development financial institution CDC Group Plc to float a Rs 500 crore (around $75 million) healthcare fund.
Manipal Hospitals is one of a few large corporate hospital chains in India. The healthcare segment in the country is dominated by standalone hospitals and regional chains, besides state-run public healthcare facilities.
Lack of adequate hospitals has resulted in a business opportunity that has attracted both private equity firms and lately a few foreign players to Indian hospital chains. Malaysian sovereign fund backed IHH is one such firm that has struck two inbound deals in India.
Temasek’s healthcare bets
For Temasek, this will be its third reported deal in the Indian healthcare space. In 2015, it had picked up nearly 18% stake in Global Health Pvt. Ltd, which owns and runs Gurgaon-based multi-specialty hospital Medanta.
Prior to that, it had backed entities such as Bangalore-based HealthCare Global Enterprises Ltd (HCG), which runs an oncology services chain. Many years ago, it had also invested in Apollo Hospital Enterprises, though it now counts it as an old portfolio firm.
While HCG also operates hospitals in some cities where Manipal is present, they are not essentially seen as competitors as the former specialises in cancer care. Medanta is a single-location entity in North India where Manipal has no presence.
Apart from these hospitals, Temasek has also bet on pharmaceutical firms such as Glenmark and Sun Pharmaceutical Industries Ltd.
