ICICI Venture is exiting one of its early investments in Mumbai-based Metropolis Healthcare Ltd where it holds close to 25% stake. A process is currently on to find a new investor in a deal estimated at over Rs 200 crore, said multiple sources familiar with the development.
European private equity giant TA Associates is among the potential investors who are eyeing a stake buy at Metropolis, one of the largest medical diagnostics lab network in the country.
Sources said, the process to induct a new investor was kicked off more than a month ago, and discussions were on with several PE funds. The deal is largely a secondary transaction involving another financial investor who could partner in the next growth phase of Metropolis, which has over 55 flagship labs spread across India, Sri Lanka, UAE, South Africa, Bangladesh and Seychelles.
The nearly three-decade-old Metropolis is processing over 10 million tests every year with referrals from 10,000 labs and its own franchise network.
One source said, TA Associates has been scouting for assets in this space, and has been eyeing Metropolis for a while now. TA, which started its India office about 18 months back, invested $45 million into Micromax Informatics recently and also picked up a stake in Idea Cellular in 2006 as part of a PE consortium.
But, a deal at Metropolis may be some distance away as the process of identifying a preferred suitor is still on. ICICI Venture had boarded Metropolis with an initial Rs 35-crore investment from its India Advantage Fund Series-1 in 2006 in a multi-stage investment. It holds about 20-25% stake in the firm now. An email query to ICICI Venture seeking confirmation on its exit plans did not elicit response at the time of posting this report.
"While ICICI is looking at exiting Metropolis as per our original agreement, there is no time frame fixed for it. We are evaluating several options and there is tremendous PE interest for the deal," said Dr GSK Velu, MD, Metropolis Healthcare. He, however, said the financial numbers regarding IVEN's exit were wrong. "We do not want to share private and confidential information in the press," he added in an email response to VCCircle. An email sent to TA Associates did not elicit a response.
Metropolis may be a portfolio company from where ICICI Venture could report a good exit, as the sector seems to be revving up with action. India's medical diagnostics market, estimated at over Rs 10,000 crore, is expected to see consolidation moves with the corporate chains vying to acquire standalone regional labs.
The diagnostics market is projected to grow between 15-20% as the per capita spend on healthcare rises on the back of expanding insurance coverage and better infrastructure. While India spends almost 6% of its GDP on healthcare, the average per capita figures are not as robust as the overall spend.
It is believed that the organised national players account for around 10% share of the overall Indian diagnostics market suggesting its heavily fragmented nature at present.
Metropolis has been actively pursuing a growth strategy via acquisitions. The company had earlier said, it had a war chest of Rs 40 crore to conclude these acquisitions. It has made 12 acquisitions in the past five years. It recently acquired a majority stake in Bangalore based RV Diagnostic Laboratory.
In an earlier interaction with VCCircle, Dr. Velu said, they will either look at an IPO or another round of funding in 2010.
In recent weeks, Ajay Piramal led Piramal Diagnostics, a part of Piramal Healthcare Ltd, said, it was on the look out for multiple regional acquisitions to expand its network. Other national players like Super Religare Laboratories (SRL), owned by the former Ranbaxy promoters, Metropolis, Dr Lal's laboratory and Max Healthcare have also bared their intentions to grow inorganically.
On Tuesday, Mint reported that Thyrocare, a smaller national chain, was in the market to divest a majority stake with PE funds and US-based Quest Diagnostics showing interest in the sale process. In February, Financial Chronicle said Raju Venkatraman, ex-EDS honcho, was setting up a chain of diagnostic medical centres starting with Tamil Nadu, and had acquired independent diagnostioc centres to kick-start the network called MEDall Medical Services. Peepul Capital was infusing $20 million for a stake in MEDall, the report said. Recently, Asia Healthcare Fund also invested in Diwan Chand Medical Services Private Limited.
Analysts believe that it is fairly a very new and niche sector where a lot of innovation can happen. Globally, healthcare companies that reduce healthcare costs, increase quality of care or service, enable payors and/or providers to improve efficiencies, and demonstrate proven business models with strong unit-level economics have attracted interest from private equity players.