Medanta-The Medicity is owned by Global Healthcare, in which Naresh Trehan has a 54.84% holding. Photo: Mint
Updated: Tue, Apr 30 2013. 11 58 PM IST
Mumbai: Medanta -The Medicity, the multi-speciality hospital founded by cardiac surgeon Naresh Trehan , is exploring options to offer an exit to US-based Avenue Capital Group Llc , which holds a 27.96% stake in the company that runs the hospital, according to three people familiar with the development.
Medanta-The Medicity is owned by Global Healthcare, in which Trehan has a 54.84% holding and construction firm Punj Lloyd Ltd owns a 17.2% stake.
Three investment banks, two local and one global, have approached Medanta-The Medicity for the mandate to find a buyer for Avenue Capital stake, said one of the three people cited above.
“The deal is pegged at around $150 million, including returns of nearly $100 million for Avenue Capital,” the person said, requesting anonymity. The other two people cited above also declined to be identified.
A spokesperson for Avenue Capital Group declined to comment on the development.
Avenue Capital Group, which was founded in 1995, had assets worth $11.5 billion under management as of 31 March. The group invests in distressed and undervalued debt and equity opportunities in the US, Asia and Europe.
Emails to Trehan did not elicit any response. A person at his office asked for the source of the information.
Gurgaon-based Medanta-The Medicity is spread across 43 acres and includes a research centre, medical and nursing school. It has 1,250 beds and over 350 critical-care beds with 45 operation theatres catering to more than 20 specialties.
The company has earnings before interest, tax, depreciation and amortization (Ebitda)—a measure of operating profit—in excess of Rs.200 crore and debt of nearly Rs.200 crore, said the second of the three persons cited above.
In the hospitals segment, private equity (PE) transactions where valuations were linked to one-year forward Ebitda have usually taken place at nine to 12 times the following year’s Ebitda, said Sunil Parnami, director at Lodha & Co., who also heads the company’s healthcare practice.
On the basis of this valuation criterion, Medanta-The Medicity’s enterprise value could be more than Rs.2,000 crore.
While private equity (PE) deals are declining, both in terms of numbers and amount invested, healthcare has been an exception for the last five quarters.
In 2012, when PE deals fell 17% to $3.3 billion, investment quadrupled in the primary healthcare space. Investors pumped $520 million into the healthcare sector, compared with $137 million in 2011, according to Thomson Reuters data.
A population of 1.2 billion, rising disposable income, demand for improved healthcare and the increasing consumer willingness to spend on healthcare will ensure sustained PE interest in the business, experts said.
Since the beginning of this year (January-April), there have been 23 healthcare transactions worth $214 million, according to VCCEdge, a firm that tracks investment activity in the country. The emphasis is clearly on niche offerings that are capital-light and easily scalable.
For hospital chains that are already established and have strong growth plans, investor appetite is sizeable.
“Within hospitals, investors typically prefer asset light, single-speciality models as they are easy to ramp up and get Ebitda-positive within a few months of their start,” Parnami said.
Comparatively, a large format tertiary care hospital typically requires around three years to become Ebitda-positive, said Parnami.
“Investors generally do not like that kind of long gestation period. For hospitals that are already functioning well and need capital for expansion, getting capital is not difficult, be it from financial investors or strategic investors,” he said.
First Published: Tue, Apr 30 2013. 11 51 PM IST on Livemint
