Private equity firm Advent International announced it is looking to sell its stake in the Indian hospital chain CARE Hospitals, but it looks another private equity firm could take its place. Big firms are set to battle it out for the healthcare business, with negotiations aiming to find a buyer by the end of the month.
The Possible Buyers
CARE Hospital chain has attracted plenty of interest from private equity firms, financial institutions and other healthcare companies in India. So far, the frontrunners reportedly include private equity firm Abraaj, a consortium of PD Hinduja Hospital and Everstone Group, as well as rival bidders of the South African healthcare chain Netcare and private equity firm Bain Capital and a consortium led by Temasek Holdings and Baring Private Equity Asia.
The five bidders have submitted their binding offers for Advent International, with final negotiations currently taking place. According to Economic Times, some potential buyers have already been dropped from the process. These included private equity firm Carlyle among others.
Cashing Out from the Lucrative Investment
Advent International acquired a controlling 72% stake in the chain in 2012. The firm paid $105 million for the stake to a number of big investors, such as Nimmagadda Prasad, the found of Matrix Labs in India and the UK-based business, Ashmore.
The firm hired Moelis &Co and Capital Fortunes in April to help find a suitable investor. According to reports, most bidders have valued the company at around $250 million to $300 million, inclusive of debt. If the valuation falls close to this, then Advent International is set to make a return of close to three times its initial investment.
Doctors working in the hospital chain currently hold the remaining stake of the business. It is unclear whether the investors are looking to sell their minority stake as well during a possible acquisition.
Plenty of Potential
The huge interest doesn’t come as a surprise, as the Indian healthcare sector is expected to grow fast in the coming years. According to a Barclay’s note, the sector could grow to $350-380 billion industry by 2025. The healthcare market is currently growing at an annual compound growth rate of 13%, with affluent Indians looking for better opportunities.
CARE Hospitals has 17 hospitals across India, with a bed capacity of 2,400. The healthcare chain’s EBITDA for financial year 2014 stood at INR 39.9 crore ($6 million) from total income of INR 397 crore ($56 million). Analysts suggest the chain could see its EBITDA increase to INR 100 crore ($15 million) by financial year 2016.
But not all see the investment opportunity as a lucrative one. Economic Times quoted an anonymous investment banker who said, “It is a fully juiced out asset and doesn’t throw out cash like a Medanta or Apolla. It is also largely based in Tier II cities and have smaller operations while its flagship property is in Hyderabad, a fiercely competitive market.”
Sources close to the deal told VC Circle, the deal won’t be finalised until the end of the month. It remains to be seen whether the healthcare chain ends up moving from one private equity firm to another.