IDFC Alternatives, an alternative investment arm of infrastructure financier IDFC, has picked up a stake in Bangalore-based Medi Assist Group, which is primarily involved in providing third party administrator (TPA) services for health insurance-related claims. The private equity arm of IDFC Alternatives has committed to invest Rs 125 crore in the company, part of which has already been invested.
Medi Assist Group is primarily involved in three lines of business. Its main business is insurance benefit administration but it has also ventured into pharmacy benefits management to corporates and wellness management for preventive healthcare.
This is the second round of funding for Medi Assist Group after it raised capital from Bessemer Venture Partners in 2011.
Deal making in healthcare
"We are very interested in the healthcare sector as a theme. There are several ancillary businesses outside of core hospitals which are asset light and service driven, with a significant customer interface," said Raja Parthasarathy of IDFC Alternatives.
This will be the fourth investment by IDFC Alternatives in the healthcare segment. Its private equity unit has successfully invested in and exited cancer treatment network Healthcare Global and Manipal Healthcare Enterprises, the healthcare arm of the diversified Manipal Group.
IDFC Alternatives' infrastructure fund invested Rs 190 crore in Sahyadri Hospitals, the Pune-based specialty hospital chain, last year.
It would look at businesses in allied healthcare services like medical equipment manufacturers and even diagnostic labs, where valuation expectations remain high.
IDFC Alternatives' will look at deals with mature hospital networks, as Parthasarathy feels they take 4-6 years to see benefits and require deep and heavy investment. In terms of single specialty chains, the firm feels there are very few businesses of scale and they typically tend to be very local.
The healthcare services and equipment sector has seen 42 deals worth $606 million in the first three quarter of calendar year 2013 as compared to 35 deals worth $743 million during the same period in 2012, as per VCCEdge, the financial research platform of VCCircle.
"There is a lot of interest in healthcare and all sorts of businesses trying to raise capital. Currently there is more demand than supply so prices are getting bid up. While the promoters preference is for a straight equity investment, we are seeing more and more investors trying to work out a deal with a structural solution to the valuation gap (between promoters and investors)," Parthasarathy added.
Funds to be used for acquisitions
"The funding will be used by Medi Assist to consolidate the company’s position in TPA business either through acquisition of national or regional players. The primary use of capital will be for newer lines of business like pharmacy benefits and wellness management," said Parthasarathy.
Medi Assist's clients includes IT majors like Infosys and TCS besides Kotak Mahindra Bank and Aditya Birla Group. A majority of Medi Assist's current revenues comes from the TPA business as pharmacy benefits and wellness management were only started few years ago. The company plans to cross sell these new services to its existing base of corporate customers.
Medi Assist was incorporated in September 1999 as one of the earliest IRDA-licensed TPAs in India with funding from Nadathur Holdings & Investments (which has now completely exited the firm), private investment arm of Infosys Technologies’ co-founder NS Raghavan. In 2006, Anil Dhirubhai Ambani Group’s Reliance Health Ventures Ltd acquired the company.
Medi Assist is currently led by Dr Vikram JS Chhatwal, who led the management buyout of the company in 2011. He also works with private equity major Advent International as operating partner, helping in the buyout of CARE Hospitals.
Chhatwal had earlier set up and headed the healthcare business for Reliance ADAG. He was also part of the founding team as the CEO of healthcare BPO and IT company Apollo Health Street Ltd besides holding a concurrent position as the CIO at the Apollo Hospitals Group.