Dubai-based buyout fund Abraaj Group is in advanced discussions to acquire a controlling stake in south India’s leading diagnostics services provider Medall Healthcare Pvt. Ltd, two people close to the development said on conditions of anonymity.
Medall Healthcare’s existing investor Peepul Capital, which owns around 80% of the company, will sell its stake. Raju Venkataraman, a serial entrepreneur who acquired Precision Diagnostics in 2009 and re-branded it as Medall Healthcare, will retain his stake, one of the two persons said.
The enterprise value of Medall is around Rs1,500 crore, said the second person. Peepul has appointed Chennai-based investment bank Spark Capital to look for buyers. Peepul has invested around Rs300 crore in Medall so far.
Abraaj Group was in the news after its acquisition of a majority stake in Hyderabad-based Quality CARE India Ltd (which runs CARE Hospitals) from global private equity (PE) firm Advent International in January. The deal size was not disclosed, but Mint reported that it came to around Rs1,700 crore. In March, Abraaj invested about $150 million in online grocery BigBasket, along with a couple of other investors.
Peepul Capital has been engaged in discussions with several PE firms for the past year to sell Medall. In 2015, discussions with Manipal Education and Medical Group fell through over a valuation mismatch, said the second person.
Global buyout funds Apax Partners, Bain Capital, Barings Asia, Carlyle, and KKR are in initial talks to acquire a 100% stake in Medall Healthcare, The Economic Times reported in September.
Medall has 60 diagnostic centres across south India with a team of 100 radiologists and pathologists.
Emails sent to spokespersons at Medall and Peepul Capital went unanswered. Venkataraman, managing director & chief executive officer of Medall, did not respond to calls. An Abraaj spokesperson declined to comment.
Peepul Capital, the India-focused PE firm with $700 million under management, has wide exposure to the healthcare industry with investments in Cura Healthcare Pvt. Ltd, Chennai-based radiology equipment manufacturer MedPlus Health Services Pvt Ltd., owner of the MedPlus pharmacy chain and Rhea Healthcare, a Bengaluru-based maternity and child are chain under the brand Motherhood.
Successful initial public offerings by diagnostic chains have increased the interest of PE funds in organized diagnostic chains.
OrbiMed Advisors Llc, a US-based PE fund, is in advanced talks to buy a significant minority stake in Kolkata-based diagnostic chain Suraksha Diagnostic Pvt. Ltd, Mint reported in June.
Suraksha is the largest diagnostic chain in eastern India and owns about 25 centres across West Bengal, Bihar as well as the national capital region.
Shares of PE-backed diagnostic chains Dr. Lal PathLabs Ltd and Thyrocare Technologies Ltd performed impressively on their listing.
Dr. Lal PathLabs (backed by PE funds WestBridge Capital and TA Associates) listed at a 31% premium at Rs720 in December 2015. The Rs480 crore IPO of Thyrocare (backed by CX Partners LLC) was oversubscribed 75 times and the shares listed at Rs665 on NSE, a 49% premium to the issue price of Rs446 in May.
Buoyed by the successful listing of Dr. Lal PathLabs and Thyrocare, Metropolis Healthcare Ltd—one of the three largest diagnostic chains in India—is planning an IPO to raise around Rs1,000 crore, Mint reported in June.
The highly fragmented domestic diagnostic market has an estimated size of Rs37,700 crore. The business is expected to grow at a compound annual growth rate of 16-17% to reach Rs60,100 crore by 2017-18, according to Crisil Ltd. Standalone diagnostic centres hold about 48% of the market, it added.