Sterling Hospitals Acquisition Battle Indicates Booming Healthcare in India

Sterling Hospitals Acquisition Battle Indicates Booming Healthcare in India

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Sterling Hospitals Acquisition Battle Indicates Booming Healthcare in India

Apollo Hospitals and Fortis tried to acquire Sterling Hospitals

Private Equity firm Actis was looking to exit from Sterling Hospitals as long back as in June last year. Fortis and Apollo Hospitals were in the race to acquire its stake. Girish Patel, the Chairman of Sterling Hospitals holds the remaining stake. The company is not listed in the stock exchanges. Sterling Hospitals is a Rs.150 crore Gujarat-based hospital chain. Actis had solicited the services of JM Financial to scout for a suitable buyer of its stake. Apart from Apollo Hospitals and Fortis Healthcare, there were several private equity funds that were competing to acquire either the full or part of the stake as they viewed healthcare as a sunrise industry in India.

Paras Pharmaceuticals was sold to Reckitt Benckiser

Actis invested $15.5 million in Sterling Hospitals to acquire a 41% stake in the year 2006. Subsequently, Actis increased its stake in the hospital. Sterling AddLife India Ltd manages and owns the hospital chain. It is not exactly known what the stake of Actis in Sterling Hospitals is. But it should be sizeable. Girish Patel, the Chairman of Sterling Hospitals was earlier founder Chairman of Paras Pharmaceuticals. Along with Actis, Girish Patel sold his stake in Paras Pharmaceuticals to Reckitt Benckiser Group Plc in 2010. Actis received nearly $725 million for selling its 63% stake in Paras Pharmaceuticals. But Sterling AddLife was demerged from Paras Pharmaceuticals before this sale was effected.

More than 1000 beds

Sterling Hospitals itself was started in the year 2000. It now has 1000 beds. It has the state-of-the-art hospitals at important cities in Gujarat like Surat, Rajkot and Bhavnagar. It has hospitals in Vadodara (110 beds), Ahmedabad (300 beds), Mundra SEZ (100 beds), Rajkot (190 beds) and Bhavnagar (180 beds). In addition to surgery and general medicine, the hospital chain has critical specialities like neonatology, orthopaedic, trauma, emergency & critical care, onco-surgery, oncology, haematology, GI medicines & surgeries, kidney transplant, nephrology, neuro-surgery, neurology, CVTS and cardiology.

Very active private equity fund

Actis is a very active private equity fund in emerging markets. It has over $3 billion investment in these markets. Emami-backed AMRI has revised its bid to Rs.600 crore to acquire the prestigious Sterling Hospitals. Malaysian wealth fund Khazanah was also challenging AMRI in the acquisition race. Khazanah has a minority stake of 13% in India’s largest private hospital chain Apollo Hospitals. It also has a controlling stake in Singapore’s Parkway Holdings. According to Actis, Sterling Hospitals is worth over Rs.650 crore. JM Financial set July 29 as the last day for submission of initial bids by the contenders.

Fortis Healthcare set a benchmark rate for acquiring hospitals

AMRI is a Kolkata-based hospital owned by the real estate major Shrachi Group and Emami, the FMCG major. Other international private equity majors like KKR and Bain Capital were also contenders for Sterling Hospitals. DM Healthcare, based in Dubai, was another contender. Out of all these contenders, three or four were shortlisted initially by Actis. But their names were not disclosed. Hospitals are valued on the basis of their beds. Usually a top hospital commands a price of Rs.50 lakhs to Rs.1 crore per bed. Three years back, Fortis Healthcare paid a rate of Rs.75 lakhs per bed to acquire Wockhardt’s hospital chains. This is considered as the industry bench mark.

A small town in Gujarat is more prosperous than the capital city of Bihar

But there is a difference between Wockhardt’s hospital chains and Sterling Hospitals. Wockhardt’s hospitals were all in major metropolitan cities. But Sterling Hospitals has its hospitals in small cities or towns in Gujarat. But here an investors should also consider the value of the town or city. A small town/city like Rajkot in Gujarat has more prosperity than even the capital city Patna of Bihar. A semi urban area in Gujarat may have more wealth than a big city like Meerut in Uttar Pradesh. It seems Manipal Health Enterprises and Fortis did not pursue their bids aggressively to acquire stake in Sterling Hospitals.

Today AMRI directors are in the jail

AMRI has four hospitals running in Kolkata. It had the ambition of expanding outside West Bengal. It placed its bid before the fire accident took place and spoiled its reputation. Today AMRI directors are in jail and the court has refused to even grant them bail. Many patients died pitifully in the fire. Many irregularities in the administration of AMRI hospitals has surfaced and published in the media after the fire accident. Parkway in Singapore has 3400 beds spread over sixteen hospitals across Asian continent. Khazanah acquired Parkway last year, pipping Fortis Healthcare with a stronger bid.

On whose behalf Khazanah was acting?

After all these things happened, it became known that Actis had a stake of 80% in Sterling Hospitals. In the final stages, Actis favoured Khazanah and entered into a preliminary agreement with it. Sources close to both the funds stated that Khazanah was prepared to value Sterling Hospitals at around Rs.650 crore, as insisted by Actis. Khazanah has a 13% stake in Apollo Hospitals. At this stage, market speculation shifted to on whose behalf Khazanah was acting. Some people stated that Khazanah was not acting as a private equity fund, but was acting on behalf of the Singapore-based Parkway or India-based Apollo Hospitals. The Malaysian fund Khazanah has already invested more than $700 million in India in various sectors like infrastructure, healthcare and financial services purely as a private equity fund. It claims that its present interest in Sterling Hospitals is also similar and has no desire to manage the hospital chain directly or indirectly. But after all these things, it is rumoured that Actis wanted to sell their entire stake in Sterling Hospitals to their fellow private equity fund and buyout specialists from India Value Fund Advisors (IVFA). Actis is a British private equity fund.

India’s private healthcare is booming

But one thing is very clear. India’s private healthcare sector is booming. It is expected to reach a valuation of $100 billion in the next four to five years time. India’s stock is rising in the world of healthcare. Medical tourism is booming. Even complicated surgeries are being performed by Indian doctors in Indian hospitals. Indian hospitals offer excellent infrastructure and facilities at a price much lesser than what is charged by the developed nations. Many Indian doctors from USA and Europe are returning home to take part in this prosperity and not to miss the boat. It is not far fetched to imagine that there may be a demand in future to allow foreign doctors to practise in India.

Comments 4 comments

snakeslane profile image

snakeslane 4 years ago from Canada

Hello ramkimeen, medical tourism is not a concept I'm familiar with, but your article is enlightening. I'm wondering if citizens of India have access to the same health care as 'tourists' who can afford to pay for services? I guess what I am asking is there universal health care in India? In Canada there is to some degree. Regards, snakeslane

ramkimeena profile image

ramkimeena 4 years ago from India Author

Thank you for your comments, snakeslane. Your observation is quite right. There is no universal healthcare in India. The government does not spend any amount on providing quality healthcare though there are primary healthcare centres and government hospitals supposed to provide healthcare to the poor people free of cost. But there is a stinking corruption in these supposed to be free healthcare centres and the people have to put up with this. But unlike in Western countries, the family system is very strong in India and this to a great extent takes care of healthcare also. For example if the aged parents suffer, the son or daughter or the grandson or granddaughter or some other relative chips in and makes healthcare available.

But there are lots of rich people in India and these people can afford the costly healthcare that is available in India.

snakeslane profile image

snakeslane 4 years ago from Canada

Thank you ramkimeena, I really appreciate your candid answer to my question. I'm impressed with the scope of this article, excellant investigative journalism. I'm looking forward to reading more of your work.

ramkimeena profile image

ramkimeena 4 years ago from India Author

I really thank you snakeslane, for your compliments and encouragement. I hope to do better because of these encouraging words. Best wishes to you.

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