M&A deal value in hospital sector jumps

Chennai: Consolidation of hospital groups resulted in a 115 per cent jump in M&A transactions in the healthcare delivery space in FY19. The total transaction value was the highest in five years.

The total value of mergers and acquisitions in the hospital sector last financial year amounted to Rs 7,615 crore against transactions worth Rs 2,991 crore in FY18- a rise of 155 per cent. This is also the highest growth in five years. In FY 16, the sector had seen a 59 per cent growth in M&A transactions to Rs 4,061 crore. During the rem-aining three fiscals of this five-year period, the average transaction value has been hovering around Rs 2,750 crore, finds ICRA.

FY19 growth was fuelled by two large transactions: Fortis Healthcare’s 31 per cent stake acquisition by Malaysia’s IHH Health-care for around Rs 4,000 crore and Radiant Life Care, backed by private equity firm KKR and Co, agreeing to take control of Max Healthcare Institute for Rs 2,351 crore. Even without the Fortis acquisition, the sector has seen 21 per cent growth in FY19.

“Consolidation is a better option for the players as the gestation period for investments in hospitals is already high due to large upfront investments and the longer time needed to ramp-up the utilisation of assets. Further, the recent regulatory actions have increased the gestation period further, thus, increasing the funding requirement of the sector and necessitating consolidation,” Kapil Banga, Assistant Vice President, ICRA said.

The hospital industry is capital-intensive on account of high real estate and medical equipment costs. The private sector accounts for almost 70 per cent of the healthcare spend in the country.