Carlyle buys GSK Velu’s stake in pathology chain Metropolis

Private equity giant Carlyle has bought Metropolis Healthcare Ltd's co-promoter GSK Velu's 36.5 per cent stake in the Mumbai-based pathology chain operator for an undisclosed amount, bringing to an end a tenuous relationship between the co-promoters of the firm.

Carlyle said it bought the stake through an affiliate of Carlyle Asia Partners IV.

This comes barely months after another alternative investment giant KKR backed the Shah family, the other co-promoter of the privately held firm, to buy out Warburg Pincus' stake in the firm.

Founded in 1981, both Shah family and GSK Velu and family owned 36.5 per cent stake each as of September 30, 2014. The rest was with Warburg Pincus.

Velu, who is separately also the promoter of medical device firm Trivitron, was in talks to exit the venture and this deal marks a culmination of that process.

Now promoted and led by managing director and CEO Ameera Shah, Metropolis is a chain of pathology laboratories with presence in India, Sri Lanka, United Arab Emirates, South Africa, Kenya, Mauritius and Ghana. It has a network of 130 laboratories with more than 1,000 collection centres in India.

Ameera Shah said, "Metropolis today is better positioned than ever before with a transformed shareholding structure and a new set of board members. With an aligned vision, we are all set to lead the markets that we are operating in.”

Metropolis more than doubled its revenue and tripled its net profit between FY10 and FY14. The company's latest financials are not in public domain.

The pathology chain business is dominated by SRL and Dr Lal PathLabs, followed by Thyrocare and Metropolis among others.

In April, Warburg Pincus sold its entire 27 per cent stake in Metropolis to the Shah family. The Shah family roped in KKR among other unnamed industrialists as partners to back this transaction. It did not say if these investors have picked a stake in Metropolis or in a private holding firm owned by the Shahs.

KKR has an active credit and quasi equity funding business in India and in October 2013 backed the promoters of hospital chain Apollo Hospitals Enterprises Ltd. In that deal, KKR lent to a promoter owned entity, which is the largest shareholder of Apollo Hospitals. KKR holds an option to convert the debt in that private holding arm into shares of the country's top hospital chain.

Meanwhile, for The Carlyle Group that has invested $1.3 billion of equity in more than 30 transactions in India as of June 30, 2015, across its growth equity and buyout transactions units, this comes as second deal in as many months after it made a growth equity investment in DEE Piping and second big transaction after it acquired a part of Destimoney early this year.

Neeraj Bharadwaj, managing director of the Carlyle Asia buyout team, said, "With an experienced management team, a wide range of test menu and a focus on superior quality and clinical output, Metropolis has developed a strong brand name and established a broad retail franchise in India."

Carlyle has extensive experience in the healthcare sector in Asia with investments in Healthscope in Australia, Meinian Onehealth and Concord Medical in China, as well as Global Health (click here for more on that) in India. Carlyle sees high growth potential in the healthcare sector in Asia as the rising middle class continues to drive demand for better healthcare products and services.

Avendus Capital and Veda Corporate Advisors served as financial advisors, EY (formerly Ernst & Young) served as commercial advisor and Ropes & Gray, Luthra & Luthra, Khaitan & Co and Shardul Amarchand Mangaldas & Co served as legal advisors to the transaction.

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