Billionaire brothers Malvinder and Shivinder Singh are selling their privately held healthcare services firm Fortis Healthcare International, which operates hospitals in the Asia-Pacific region, to their majority-owned, public-listed firm Fortis Healthcare (India), making it the largest healthcare services firm in the country in terms of number of hospitals and bed capacity, overtaking Apax Partners-backed Apollo Hospitals.
The deal will pitch-fork Fortis Healthcare as a strong competitor to Singapore-based Parkway Hospitals in the Asia-Pacific region. Last year, Malaysian sovereign wealth fund Khazanah had pipped Fortis Healthcare over the control of Parkway in a bitter corporate takeover battle, following which the Singh brothers-owned firm had been vigorously acquiring small and mid-sized healthcare firms in South-East Asia and Australasia.
The proposed intra-group transaction will consolidate almost the entire healthcare business of the group under the public-listed firm as the promoters recently sold their IPO-bound, privately held diagnostics firm Super Religare Laboratories (SRL) to Fortis Healthcare. Fortis Healthcare also has a separate public-listed subsidiary, Fortis Malar Hospitals.
In a meeting held today, Fortis Healthcare India board approved the acquisition of Fortis Healthcare International, from RHC Financial Services (Mauritius) Ltd, a company owned by the Singh brothers.
“The valuation will be advised by an independent valuation agency, to be appointed by a committee of independent directors for the purpose. Further, the board has decided, subject to necessary approvals, to change the name of Fortis Healthcare India to Fortis Healthcare Ltd,” the company disclosed to the stock exchanges.
Malvinder Singh, group chairman of Fortis Healthcare, said, “Our vision is to create a leadership position in integrated healthcare delivery in the pan Asia-Pacific region. This integration is a fundamental step in that direction. With the region’s increasing urbanisation, ageing population and greater access to new medical technologies, the demand for more and better healthcare is rising sharply. Fortis is keen to capture this opportunity. This integration provides us the model and the scale to harness the opportunity.”
The transaction involves an all-cash deal, which seems natural, given that the promoters already own around 81 per cent of Fortis Healthcare and need to bring it down in the near future to meet the public listing norms that mandates a minimum 25 per cent public float.
After the announcement, Fortis Healthcare scrip rose around 4 per cent at BSE but closed at Rs 144.3 a share, down 1.9 per cent in a weak Mumbai market on Monday. At this price, the firm has a market cap of Rs 5,846 crore or $1.2 billion.
Fortis Healthcare International is a Singapore-based healthcare delivery company with presence in nine global locations including Hong Kong, Dubai, Australia, New Zealand, Canada, Singapore, Sri Lanka, Vietnam and Mauritius.
The firm, which has been pursuing an aggressive overseas acquisition strategy for over a year now, has presence in multiple verticals including primary healthcare, speciality day care healthcare, hospitals and diagnostics.
Among its assets, Fortis Healthcare International owns Quality Healthcare Ltd, the largest primary care network in Hong Kong with 580 centres; Dental Corporation Pty Ltd, the largest dental care network in Australia & New Zealand with 174 centres; Fortis Speciality Hospital, an under-construction specialty hospital in Singapore; a stake in the 350-bed Lanka Hospitals Corporation, Sri Lanka’s largest super speciality hospital, and the largest private pathology laboratory in the UAE.
Moreover, it had recently announced the acquisition of 65 per cent stake in Hoan My Medical Corporation, one of Vietnam’s largest private healthcare provider groups with over 1,100 beds across six hospitals.
As a consolidated firm, Fortis Healthcare will have over 74 hospitals with more than 12,000 beds, 580 primary care centres, 188 day care speciality centres, 190 diagnostic centres and a base of over 23,000 employees, making it among the largest integrated healthcare delivery networks in the Asia-Pacific. The combined entity will have strength of over 4,000 doctors.
Law firm Amarchand Mangaldas advised on the proposed acquisition. Rajah & Tann LLP and Allens Arthurs Robinson were the Singapore and Australian counsels respectively.
As a part of the deal, a new management structure will be put in place for the combined entity, with the group chief Malvinder Singh acting as the executive chairman of Fortis Healthcare while his younger brother Shivinder Singh will be the executive vice-chairman.
Vishal Bali, who has been heading operations of Fortis Healthcare International, will be the global CEO of Fortis Healthcare. The Indian operations will be headed by Aditya Vij, as India CEO, who will focus on the Indian expansion while the international business will be headed by Eng Aik Meng who will focus on all expansions outside the country. Global functional heads will manage the key business functions of the combined entity.
Late last year, Fortis Healthcare’s CEO Bhavdeep Singh resigned from the company after serving the hospitals company for less than two years. Incidentally, he had left Reliance Retail to join Fortis. Two months ago, the firm appointed Aditya Vij (a former country head for General Motors India) from infrastructure firm Punj Lloyd as CEO.
Consolidation Play & Scale
Earlier this year, the Singh brothers had sold their entire holding of 74.59 per cent in SRL to Fortis Healthcare for Rs 803 crore. SRL, the country’s largest diagnostics chain which was looking to float its maiden public issue in 2011, is backed by private equity firms Avigo Capital Partners (that invested Rs 100 crore for 9.27 per cent stake) and Sabre Partners (that invested Rs 50 crore in SRL at a slightly higher valuation than Avigo’s investment).
With the acquisition of Fortis Healthcare International, the listed firm will become by far the largest healthcare services firm both in terms of total bed capacity and total number of hospitals.
Fortis Healthcare had consolidated revenues of Rs 1,482.8 crore, with net profit of Rs 124.3 crore for the year ended March 31, 2011. While this will certainly shoot over Apollo Hospitals which had revenues of Rs 2,605 crore, with net profit of Rs 184 crore during 2010-11, Fortis Healthcare is also expected to pip Parkway Holdings to become the largest healthcare services firm in the Asia-Pacific region.
Parkway Hospitals had total revenues of S$1.11 billion or around $882 million for the year ended March 2011. The revenue of privately held Fortis Healthcare International is not in public domain but media reports quoting the promoters suggest that the combined entity will have a business with annual revenues of around $1 billion.
Although consolidating all related businesses under a single umbrella cannot be faulted, just last October, group chief Malvinder Singh had said that their privately held entity will be the ‘vehicle of growth for international healthcare businesses,’ a move that meant Fortis Healthcare will focus only on Indian operations.
The promoter’s private group firm kick-started the strategy by announcing acquisition of five healthcare businesses of Hong Kong-based Quality Healthcare Asia for Rs 882 crore. This was not seen as a great move with analysts questioning the strategy as it limited the public listed firm’s global expansion.
Media reports had also suggested that the promoters had no immediate plans to merge their private firm pursuing overseas acquisitions with Fortis Healthcare.
The reasoning went that this would not strain the balance sheet of Fortis Healthcare, which would have got loaded with debt for financing overseas acquisitions.
Even though the latest move cannot be faulted in a dynamic business environment, it comes as yet another swift move by the billionaire brothers who have been springing surprises one after the other ever since they sold their 35 per cent stake in the family flagship business Ranbaxy Laboratories for Rs 10,000 crore three years ago and thereafter, have vigorously expanded healthcare and financial services businesses.