Global private equity giant Warburg Pincus is aggressively pushing the expansion of its healthcare portfolio in India with a possible investment in Metropolis Healthcare, one of India's large diagnostics networks.

It is learnt that Warburg has shown interest in the 20% stake in Metropolis owned by ICICI Venture, which is on the block. I-Ven holds about 20% stake in Metropolis.

According to sources, Warburg is holding talks for a transaction estimated at around $50 million. Warburg was a serious bidder even though other PE firms including TA Associates have held discussions, sources added.

Warburg, which has several high-profile investments in healthcare globally, has done a single deal in the healthcare space in India by acquiring about 22% stake in Max India in 2004. Later in 2009, Warburg sold 5.6% stake for Rs 246 crore and still holds a 17% stake in the insurance and healthcare firm. Max Healthcare had raised equity funding of $31.99 million from Warburg Pincus India Pvt Ltd in two separate tranches in 2004 and 2005. 

While VCCircle could not reach out to Metropolis Healthcare MD G S K Velu today, he said, a few days back, they were seeing a lot of interest from PE players for the stake (I-Ven) sale. He, however, added that the process was underway and will take a few months for completion. E-mails sent to Warburg Pincus and ICICI Venture too remain unanswered at the time of posting this report.

In March this year, VCCircle had reported on ICICI Venture’s proposed exit from Metropolis with TA Associates as one of the contenders for the stake. 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 processes over 10 million tests every year with referrals from 10,000 labs and its own franchise network.

"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 had told VCCircle then.

Business Standard had recently reported that Apax Partners was zeroing in on a Rs 200-crore deal to pick up a strategic stake in Metropolis Healthcare. Apax Partners is expected to buy out the 25% stake held by ICICI Venture in Metropolis and invest further cash totalling Rs 200 crore in this deal.

Metropolis occupies the diagnostics niche in the healthcare services space that 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 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. 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.

The diagnostics space has been witnessing a lot of fund-raising and deal action in the recent past. Economic Times has reported today that Sequoia Capital has put a part of its 30% stake in one of the country’s largest diagnostics and pathology services chain, Dr Lal PathLabs, up for sale. Privately-owned Dr Lal PathLabs is believed to be valued at over Rs 800 crore. Recently, Ajay Piramal-led Piramal Diagnostics, part of Piramal Healthcare Ltd, said, it was on the lookout 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. Mint had 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.

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