Is Manipal and Medanta Hospital Acquisation Deal Is Still On The Table?

Dr. Rajan Pai lead Manipal hospital is evaluating a bid to acquire a stake in the hospital Medanta-The Medicity, which is lead by Dr. Naresh Trehan. A question mark comes on will Dr Trehan sell to Dr Pai?

If the both the hospital would have merged, after collaboration Manipal and Medanta, would have 5 million patients and several thousand beds, a Manipal-Medanta combine will emerge as the largest hospital chain in India.

Medanta, founded in 2009, operates super speciality hospitals and clinics in cities such as Gurgaon, Lucknow, Indore, Ranchi and Sri Ganganagar. Naresh Trehan, his family members and cofounder Sunil Sachdeva, who jointly own 55% of the company , would have to sell their entire stake to Manipal.

Whereas, Ranjan Pai-led Manipal Hospitals, together with its investors TPG Capital and Temasek, has tried to close the deal to acquire Medanta hospitals owner Global Health at a valuation of Rs 5,800-6,000-crore, as consolidation frenzy hits Indian healthcare.Carlyle holds a 27% stake in Medanta, whereas, Temasek owns 18% of both Medanta and Manipal.

Pai owns 60% of Manipal Hospitals through the promoter holding company, with TPG and Temasek holding the rest. TPG had already invested about $146 million in February 2015 in Manipal Education & Medical Group (MEMG) and has a 22% stake in the entity. The issue is , Medanta had posted EBITDA (Earnings before interest, taxes, depreciation, and amortisation) of Rs 240 crore in FY19, up 8% from FY18. The Rs 5,800 crore valuation will be an ebitda multiple of about 24 times.

With this Temasek, which also holds a stake of about 18% in Manipal Health, will be able to consolidate its shareholding should a merger go through. Manipal also counts private equity firm TPG Capital as a key investor. Manipal’s current proposal would also see the complete exit of Carlyle from its five-year old investment in Medanta.

Medanta has been facing growth challenges. In December 2017. Medanta’s profit margins had dropped for two years. Its earnings before interest tax, depreciation and amortisation halved in 2015-16. In 2016-17, Medanta reported a profit margin of 3.72%, about one-fourth of what it was the previous year.

Pai’s Manipal Education & Medical Group (Manipal Group), a privately held conglomerate, owns and operates ten multispecialty hospitals in Maharashtra, Karnataka, Andhra Pradesh, Tamil Nadu and Goa and also manages five teaching hospitals in Karnataka and Sikkim, as well as several fertility clinics across the country. It also owns and operates a hospital in Malaysia and manages a clinic in Nigeria.

The hospital sector is one of the fastest growing, is expected to advance at a compounded annual growth rate of 22% during 2016-2022 to reach $372 billion by 2022. Hospital valuations in India have been coming under pressure as price controls, debt and operational expenses rise, leading to widespread consolidation in a hyper competitive market. This despite the sector’s growth potential.

The entire hospitals industry has been facing headwinds because of price controls and regulatory disruptions, which are prompting some of them to consider consolidation as a way forward.