Private equity major Warburg Pincus is investing $85 million (Rs 392 crore) in India's largest diagnostic laboratories chain Metropolis Healthcare Limited paving a way for an exit for ICICI Venture. Warburg Pincus' investment is a combination of both a primary investment to fuel the company's growth and a secondary transaction to buy ICICI Venture's stake.

VCCircle reported last month that Warburg Pincus was leading the race for a stake buy in Metropolis.

The deal would be one of the largest investments in Indian healthcare, coming soon after the Rs 380-crore infusion by GIC Special Investments' in hospital chain Fortis Healthcare.

The fresh funds would be used by Metropolis to pursue acquisitions as it looks to become a major player in the emerging markets. 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. Last year it acquired a majority stake in Bangalore based RV Diagnostic Laboratory.

In a fragmented market for medical diagnostic services in India, Metropolis has a network of 45 laboratories and over 350 collection centers. Metropolis processes over 12 million tests a year, serving over 10,000 laboratories, hospitals, and nursing homes and 50,000 doctors, the company said in a release today. Metropolis has also expanded its operations overseas with 10 laboratories in Sri Lanka, South Africa and UAE. Metropolis will continue to seek attractive acquisition opportunities while expanding its delivery network and deepening its presence in current locations, the company added.

"Our association with ICICI Ventures over the last few years has been rewarding and we are delighted to welcome Warburg Pincus as our future partner. We are confident that with their support we will achieve our vision of consolidating Metropolis as the foremost clinical diagnostics service provider across the emerging markets of South Asia, Africa and Middle East," said Ameera Patel, Executive Director & CEO, Metropolis.

ICICI Venture had invested Rs 35 crore in Metropolis from its India Advantage Fund Series-1 in 2006, holding around 20-25% stake in the firm now. The private equity arm of India largest private sector lender has been exiting several of its investments, the last one being loyalty programme firm i-Mint.

The deal would be the first fresh investment by Warburg Pincus in nearly two years, with its last deal coming in September 2008 with $35 million in Gangavaram Port Ltd, India's deepest port in Andhra Pradesh. Warburg Pincus raised $15 billion for its latest private equity fund in April 2008.

The PE firm, which has made several healthcare investments globally, also holds a stake in insurance and healthcare player Max India. Warburg was one of the players to invest in a hospital chain in India by acquiring about 22% stake in Max India in 2004 and is currently sitting on net gains of more than 3x. The PE firm’s current stake of 16% in Max India is valued at Rs 615 crore as per the company closing price today. In July 2009, Warburg Pincus made a partial exit by selling a 5.6% stake for Rs 246 crore.

o3 Capital acted as the sole financial advisor to Metropolis for this transaction. Amarchand & Mangaldas & Suresh A Shroff acted as legal advisors to Warburg Pincus, Desai Diwanji acted as legal advisors to Metropolis and Ernst & Young conducted financial and accounting diligence for the transaction.

The diagnostics space has been witnessing a lot of fund-raising and deal action in the recent past. Economic Times reported recently 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.

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 diagnostic 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.

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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