Private equity firm, Advent International, has agreed to invest ₹2,475 crore ($300 million) into Apollo HealthCo, a wholly owned subsidiary of Apollo Hospitals Enterprise Ltd. Concurrently, Keimed Pvt Ltd, a wholesale distribution company owned by the promoters of the Apollo group, is to be merged with Apollo HealthCo.  

Apollo HealthCo is into two businesses — digital healthcare (Apollo 24/7) and pharma distribution. Under ‘pharma distribution’, it serves the 6,000-odd pharma outlets owned by Apollo Pharma Ltd, a group company. The merger of Keimed with Apollo HealthCo will raise the number of pharmacies it serves to 70,000. 

Advent will invest in compulsorily convertible debentures of Apollo HealthCo in two tranches – ₹1,732 crore (70 per cent) at first close, and ₹743 crore (30 per cent) in 12 months. When the debentures are converted into equity, Advent will end up with 12.1 per cent stake in Apollo HealthCo.   

Fund utliisation

The deal values Apollo HealthCo at ₹22,481 crore.  The consideration of ₹2,475 crore that Apollo HealthCo receives from Advent will be utilised as follows: ₹860 crore will be used for further growth of the company; ₹890 crore will be paid to the parent company, Apollo Hospitals Enterprise Ltd. Because about three years ago, the pharma distribution business of the parent company was transferred Apollo HealthCo, for ₹1,290 crore. Now that the parent company is getting ₹890 crore back, the other ₹400 crore will be converted into equity shares of Apollo HealthCo. 

₹725 crore will be used for buying 11.1 per cent stake in Keimed, to make the integration happen. The other 88.9 per cent (owned by existing shareholders of Keimed), will convert as equity in Apollo HealthCo. 

After the merger, the shareholding in Apollo HealthCo will be as follows – Apollo Hospitals Enterprise Ltd 59.2 per cent; existing shareholders of Keimed 25.7 per cent; Advent International 12.1 per cent and ESPO 3 per cent. 

Key aspects

There are two notable aspects of the deal. First, Keimed has a vast library of historical data. This will strengthen Apollo HealthCo’s own database and give a leg-up to the company’s data analytics. Second, the deal is expected to double Apollo HealthCo’s turnover to ₹25,000 crore in three years; furthermore, because during the three-year period, Apollo HealthCo’s digital healthcare business would have completed its investment phase, EBIDTA of the company is expected to increase from 1.5 per cent now, to 7-8 per cent. (Under Apollo 24/7 platform, the company offers a range of services such as doctor consultations, home delivery of medicines, diagnostics at home, chronic condition management and insurance.)