Why is Temasek-Manipal Health Enterprises deal 'premium'?

In one of the biggest healthcare deals, Singaporean global investment company Temasek has acquired a majority stake in India’s Manipal Health Enterprises at a valuation of Rs 40,000 crore.

The sovereign wealth fund that previously held an 18 per cent stake in Manipal Health Enterprises has now purchased 41 per cent shares from the company’s promoters and investors--TPG Capital Management and National Investment and Infrastructure Fund (NIIF).

While NIIF sold its whole 8 per cent stake that it held in the hospital chain, TPG sold 11 per cent of its 22 per cent stake that it bought in 2015 for Rs 900 crore. Following the premium healthcare deal, Manipal Health Enterprises promoter Ranjan Pai and his family will now own 30% shares in the company compared to previously 52%.  Dilip Jose Managing Director and CEO at Manipal Hospitals when asked about the development, its rationale and implications showed an “inability” to comment at this juncture.

Healthcare analysts have called the deal a “premium”. “The deal is roughly 4 crore per bed value, which means 10,000 beds at 40,000 crore valuation. It looks steep but a good price to pay for the acquisition. Those deals are usually at a premium,” said Rajesh Pherwani, health and pharmaceuticals analyst and founder, Valcreate Investment Managers.

Manipal Health Enterprises commonly known as Manipal Hospitals is a chain of multi-speciality hospitals in India that comes under the Manipal Education and Medical Group. The group focuses on education, healthcare and research and is connected to the Kasturba Medical College, founded by T. M. A. Pai in 1953.

Holding a global reputation, Manipal Hospitals is among the top healthcare providers in India serving over 4.5 million patients annually.  The company aims to develop an affordable, high-quality healthcare framework through its multispecialty and tertiary care delivery spectrum and further extend it to out-of-hospital care.

The chain has been on an acquisition spree in the last few years for expansion. However, in April 2021, it sold its only hospital outside India, Manipal Hospital Klang, Malaysia, to Ramsay Sime Darby Health Care for Rs 700 crore.  In 2021 Manipal Hospitals completed the acquisition of Columbia Asia's 11 hospitals in India for Rs 2,100 crore. In the same year, the chain of hospitals acquired Vikram Hospital in Bangalore for Rs 350 crore. In 2022, Manipal Hospitals arm Manipal HealthMap acquired a majority stake in diagnostics company Medcis PathLabs.

With the completion of the acquisition of 100% shareholding in Columbia Asia Hospitals Private Limited and Vikram Hospital (Bengaluru) Private Limited, the integrated network today has a Pan-India footprint of 29 hospitals across 15 cities with 8,300 beds, and a talented pool of 4,000 doctors and an employee strength of over 11,000.

Healthcare analysts see the Temasek - Manipal deal as part of an increasing trend of private equity (PE) doing control deals in the Indian healthcare sector.  “While the earlier phase of private equity in India in the years 2010-2020 was largely minority or growth capital-driven, we are increasingly seeing more PE control deals over the last 2-3 years. Key examples have been Sahyadri - Ontario Teachers, KKR - Max, Sterling Hospitals - Arpwood PE and Samara Marengo Platform,” said Ankit Poddar, Director, lead, Healthcare Practice at Candle Partners.

Temasek’s obvious interest in Manipal Hospitals stems from the chain being National Accreditation Board for Hospitals & Healthcare Providers (NABH), Association for the Accreditation of Human Research Protection Program (AAHRPP) accredited and most of the hospitals in its network are NABL, ER, Blood Bank accredited and recognized for Nursing Excellence. Manipal Hospitals has also been recognised as the most respected and patient-recommended hospital in India through various consumer surveys.

“The key aspects which is exciting PEs in India are limited healthcare spends / capita, predictable cash flows, ability to create efficiencies in the longer term through cost reduction via consolidation, familiarity of assets as several of these have gone through several rounds of due diligence and rank high on governance,” said Poddar.

Poddar cites the trends that globally, larger private equity firms have done control deals in healthcare; a trend most prevalent in USA and Europe. Blackstone, Apollo, Carlyle, KKR & Warburg are some of the largest investors in several health services businesses. Key examples of large deals are Teamhealth (Blackstone) and Envision Healthcare (KKR). Besides Hospitals, globally the larger PE control deals have been in Nursing Homes, Health Information Technology, Staffing companies, Medical supplies and Health Tech.