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South Africa’s Life Healthcare to up stake in Max Healthcare for up to $132M

23 July, 2014

South African hospital chain operator Life Healthcare is raising its holding in one of India’s top corporate hospital chains from 26 per cent to 46-47 per cent for up to Rs 794 crore ($132 million), as per a stock market disclosure.

VCCircle had first reported on June 26 that Life Healthcare may raise holding in Max to around 46.5 per cent.

The proposed deal involves stake purchase from Max India besides subscription to fresh shares. Max India, the public listed parent of Max Healthcare, which currently owns 67.5 per cent of the hospital firm, will divest up to 13.3 per cent of its existing holding for up to Rs 383 crore to Life Healthcare.

In addition Life Healthcare will subscribe to new shares of Max Healthcare at Rs 67.5 each through a preferential allotment worth up to Rs 397 crore. Max Healthcare will use the money to retire debt.

These two transactions aggregate to Rs 780 crore and based on strategy of another investor to exercise its tag-along right this may rise up to Rs 794 crore.

The transaction translates to an equity value of Rs 2,884 crore for Max Healthcare and an enterprise value of Rs 3,650 crore. Its pre-money valuation has moved up over 34 per cent since Life Healthcare first invested in the company in January 2012.

Life Healthcare had originally picked 26 per cent stake in Max Healthcare in 2012 for around Rs 517 crore, of which Rs 89 crore went to part redeem preference shares held by another investor International Finance Corporation (IFC), the private sector investment arm of the World Bank. This transaction valued Max Healthcare at Rs 1,986 crore.

It later invested Rs 40 crore more to retain its holding at 26 per cent as IFC converted part of its Optionally Convertible Preference Shares (OCPS) of Max Healthcare into equity shares, thereby pushing its holding to 7.5 per cent.

Currently IFC holds 7.5 per cent and the balance 0.64 per cent is under ESOP pool.

IFC has a right to convert a portion of its outstanding OCPS and maintain its shareholding at 7.5 per cent or exercise a proportionate tag along with Max India’s stake sale in Max Healthcare which may bring down its holding to 5.4 per cent. Based on IFC’s decision Life Healthcare will hold 46-47 per cent in the company, the same as Max India.

The stake divested by Max India and fresh issuance by Max Healthcare could vary at the time of actual closure of the transaction depending on what decision IFC would take with respect to its options.

Post transaction both joint venture partners will have equal representation on the Max Healthcare broad. However, the brand name of Max Healthcare will remain unchanged.

Rahul Khosla, managing director, Max India and chairman Max Healthcare, said that  the JV with Life Healthcare has evolved into a mutually beneficial partnership. According to him, as Max Healthcare prepares itself to its third wave of growth it will stand to benefit from Life Healthcare’s experience in managing a large and widespread network of hospitals.

Mohit Talwar, deputy managing director of Max India, led the transaction.

Commenting on the transaction, Andre Meyer, CEO, Life Healthcare, said, “India is a very important market for us. Our relationship with Max has been very constructive. Both Max and LHC were very keen on growing our partnership and the sake equalisation is an important step in this direction.”

Life Healthcare is the second-largest private hospital operator in South Africa. It currently owns and operates 63 facilities with 8,322 beds in a comprehensive geographic spread over seven South African provinces and Botswana. It is also a leading provider of acute rehabilitation and mental health services in the country.

Max Healthcare operates 12 hospitals in North India, with a focus on high end tertiary and quaternary care. It undertook an exponential phase of organic expansion a year ago, by launching four new hospitals in Delhi-NCR and North India.

Max Healthcare reported a 22 per cent rise in gross revenue to Rs 1,407 crore with a 59 per cent growth in EBIDTA to Rs 113 crore for the year ended March 31, 2014. This was supported by higher average occupancy which increased to 74 per cent last fiscal against 69 per cent in the previous fiscal despite a 12 per cent expansion in operational beds to 1,470 from 1,300 beds in FY13.

The deal values Max Healthcare at 31x its FY14 EBITDA based on its equity value.

Max Healthcare is a subsidiary of diversified listed firm Max India, which also has a presence in insurance among other businesses.

As reported by VCCircle, Ajay Bakshi who was joined Max Healthcare as chief executive in November 2011, had quit the firm early this year to join Bangalore-based Manipal Health Enterprises Pvt Ltd, which runs a multispecialty hospital chain under Manipal Hospitals banner, as CEO.

Max India had moved Rajit Mehta, previously executive director & COO of Max Life Insurance Co. Ltd (formerly Max New York Life Insurance Co. Ltd), to Max Healthcare as its deputy managing director; Max India managing director Rahul Khosla is now the interim chief of Max Healthcare, too.

Mehta is credited with turning around Max Life and has been trusted to drive operational efficiency and cost management at Max Healthcare.

(Edited by Joby Puthuparampil Johnson)


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South Africa’s Life Healthcare to up stake in Max Healthcare for up to $132M

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