June 2019 \ Business & Investment \ BUSINESS AND GOVERNANCE
Value of M&A deals in hospital sector up 155 percent in FY19

The total transaction value of mergers and acquisitions ...

The total transaction value of mergers and acquisitions (M&A) in the hospital sector surged 155 percent in India during the financial year 2018-19 to Rs 7,615 crore, an ICRA report said in May. The value of Rs 7,615 crore is the highest in the last five years, said the report. In FY 2017-18, the total value of M&A in the sector stood at Rs 2,991 crore. “The hospital sector has witnessed consolidation and a significant jump in M&A transactions, post the stress on performance of the sector due to regulatory restrictions,” the report said.

“Two largest transactions in FY 2018-19 were the acquisition of stakes in two listed entities—Fortis Healthcare for Rs 4,000 crore (by IHH Heathcare) and Max Healthcare Limited for Rs 2,351 crore (by KKR-Radiant),” ICRA said, adding that in both the cases, the deals were signed at a premium to the then prevailing market price.

The acquisition of shares in Fortis Healthcare was done at a price of Rs 170 per share, against the then prevailing market price of Rs 144 per share, while the agreement to acquire shares in Max Healthcare was announced with an equity value of Rs 4,298 crore for the healthcare business against the then prevailing market value Rs 2,170 crore, as per the report. The premium paid reflected the healthy appetite for quality healthcare assets from the global reputed investors, despite the recent underperformance of the sector. “Excluding the largest transaction in the sector—Fortis Healthcare—the growth in value of the transactions done in FY2019 will be 21 percent,” the report said.

ICRA maintained a stable outlook for the sector and held that the performance of the hospital companies has likely bottomed out and the sector was likely to witness an improvement over the medium term, though any incremental regulation may have a transient impact. “Structurally, in the long term, underlying fundamentals continue to favour the sector like the significant shortage of beds in the country and the increase in the disease burden and ageing demographic profile.