Keen investor interest in Fortis ‘indicative of value creation in healthcare’

The Hero-Burman combine, which has triumphed in the five-way bidding war for Fortis, brings to the fore interest from reputed Indian business power-houses in the under-served healthcare space and could lead to a “pearl of acquisitions” in the Indian healthcare space, say experts.

Private equity experts tracking the deal state that the keen interest in Fortis is an indication of the value creation that can be created by investors in healthcare, in this case corporates, eagerly looking to tap the under-served sector.

Manoj Patkar, Executive Director and Partner at investment-banking firm 7i Advisors, told BusinessLine the entry of reputed corporates, Hero and Dabur, in the healthcare delivery space is set to be a game-changer.

“If the consortium acquires Fortis, which seems now likely with the board recommendation, it can potentially bring in newer business models, fresher investments and sharper strategies which can assist in India emerging as a global destination for healthcare services delivery,” said Patkar.

The board of Fortis Healthcare has also considered the recommendations of legal adviser Cyril Amarchand Mangaldas as well as financial adviser Standard Chartered Bank.

Investment bankers allude to the fact that several corporate provider chains have emerged recently “with the ambition, resources and commitment to bring the best-in-class healthcare to India at one of the lowest costs in the world.”

Trust deficit

With corporates coming on board Fortis, “the trust factor ratchets up on the board” and could, over the long term, “prove to be a major deterrent to any fraud, given the timely validation of financial assets and asset protection.”

Fortis has been embroiled in regulatory investigations, with the Serious Fraud Investigation Office looking into allegations concerning Fortis founders Malvinder Singh and Shivinder Singh.

“Trust deficit,” maintain investment bankers, “is a key issue these days, and is set to drive a re-engineering of the healthcare system. Corporate players have a key role to play in bridging the supply-demand gap in health infrastructure, even as they look to advance the standards of care.”

The bidding war for Fortis Healthcare intensified, with four of the five parties — IHH Healthcare, TPG-Manipal, Munjal-Burman and Radiant Life — revising their offers.

“The fact that there were competing bids from four aggressive buyers for Fortis reflects the strong positive sentiment across multiple investors in cashing in on the healthcare opportunity in India,” said Patkar of 7i Advisors.

The increased deal activity and resultant investments in the under-served healthcare services space “augurs well for the Indian market and consumers,” he said, adding: “In addition to the existing market participants like Manipal and Radiant, and the financial investors supporting these market players, the Indian healthcare sector is also attracting interest from Asian healthcare majors like Malaysia’s IHH and China's Fosun.”

As one party would acquire Fortis, “the remaining three suitors, and more like them, are bound to scout for substitute acquisitions or a ‘pearl of acquisitions’ in the Indian healthcare space.

“This is expected to lead to heightened deal activity in the sector, including hospitals, diagnostic labs and other speciality healthcare providers in the next couple of years,” said Patkar.

“The ultimate beneficiary,” he added, “will be the Indian consumer, who will potentially have better services.”

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