Solid foundations: Indian healthcare deals continue to flourish

Data InsightDealspeak 1 June

Solid foundations: Indian healthcare deals continue to flourish

The Indian healthcare sector has solid foundations that will continue to support both growth and consolidation deals.

"Increasing income levels, accelerated pace of urbanization, higher life expectancy, significant prevalence of lifestyle diseases, emphasis on early detection and wellness, greater health insurance coverage, proliferation of digital health ecosystems and government-led initiatives are key factors for the rapid progress of the sector,” said Jane Sequeira Kumar, a partner at PwC.

The largest deal announced so far this year has been Temasek Holdings’ ongoing purchase of a 41% share in private multi-hospital operator Manipal Health Enterprises from existing investors consisting Indian SWF National Investment & Infrastructure Fund and TPG Capital. The company's enterprise value is NR 400bn (USD 4.88bn), as reported in April.

In the year to date (YTD), 33 deals valued at USD 3.4bn have been announced, a high not seen since YTD 2014, according to Mergermarket data. This follows a record of almost USD 11bn across 99 deals in 2022.

Targets aplenty

Hospital operators like Manipal Health Enterprises were in high demand last year. However, inflationary and recessionary pressures put a dampener on valuations in the sub-segment, one source familiar with the situation said, adding that assets were normally in the 15x-20x EBITDA range. Inflation has raised the costs of medical equipment, maintenance, upkeep, and doctor payouts. This could force sellers to accept deals on the lower end of the spectrum, this source added.

One area that could pick up the slack is the manufacture of generic drugs, the source said. Big pharma companies are running up a number of patent expiries and could turn to India. Deals in the space that were announced last year include Advent International’s 51% stake acquisition of Suven Pharmaceuticals [BOM:543064] for USD 762.9m (INR 63.13bn); and California-based animal-free dairy products manufacturer Perfect Day’s deal with Sterling Biotech for USD 1.1bn (INR 84.3bn). More recently, in an outbound deal, Sun Pharmaceutical Industries [BOM:524715] plans to acquire all remaining shares of Israel's generics maker Taro Pharmaceuticals Industries [NYSE:TARO] that the former doesn't already own.

A second, and growing sub-sector, is AI or tech-enabled healthcare services such as medtech devices - companies making or improving technologies used in surgeries; online pharmaceutical distributors such as consumer healthcare app PharmEasy’ and digitization of medical services, including online medial consultation such as Practo Technologies, continued the source.

Ripe for consolidation

Names that might be traded this year include Glenmark Pharmaceuticals’ [BOM:532296] active pharmaceutical ingredient business Glenmark Life Sciences [BOM:543322] and infertility treatment clinics chain Indira IVF Hospital – both of which are already being chased by private equity (PE) firms.

Diagnostics lab chain NM Medical is also on the block; as is a stake in oncology-focused hospital chain Mahatma Gandhi Cancer Hospital and Research Institute.

On the buyside, financial sponsors such as Blackstone [NYSE:BX], Carlyle [NASDAQ:CG] and KKR [NYSE:KKR] are stalwart investors in India’s healthcare space, alongside domestic players like Tata Capital. Meanwhile, a new wave of investors, lured by the promising returns of the sector, are also seeking to enter.

“In fact,” said PwC’s Sequeira Kumar, “there are several healthcare-focused PE funds that have been successful in raising India-specific funds focused on Asian markets for investments in the sector.”

Middle Eastern firms such as Abu Dhabi Investment Authority [ADIA], and Canadian pension fund Ontario Teachers’ Pension Plan [OTTP] are looking at increasing their Indian healthcare exposure.

Both institutions have done deals in India: in March 2023, ADIA acquired a 10% stake in eyewear retailer Lenskart Solutions for USD 500m; while in August 2022, OTTP announced an acquisition for a majority stake in Sahyadri Hospitals, a multispecialty hospital in Maharashtra.

While tighter credit markets and declines in public market valuations might hurt sentiment in the short term, the sector remains ripe for another wave of consolidation, said Sequeira Kumar.

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