Posted on Nov 08, 2011 by Sergio Ulloa
Indian private hospital chain Fortis Healthcare Ltd have announced that they will fully acquire their Singapore-based sister firm Fortis Healthcare International for US$665 million, in what will be the biggest ever deal struck in India's healthcare services industry.
The board of Fortis Healthcare, owned by the billionaire brothers Malvinder and Shivinder Singh, had approved the merger of their privately held Asia-Pacific healthcare services firm into their majority-owned publicly-listed firm Fortis Healthcare (India) in September, but agreed to leave the terms of the buyout (an all-cash deal) to be set later by an independent valuation agency due to the fact that the transaction involved related party assets. The move follows the similar intra-group acquisition of the previously privately held diagnostics firm Super Religare Laboratories from Fortis shareholders earlier in the year.
On November 1st, Fortis Healthcare revealed that the committee of independent directors had valued the deal at US$695.7 million, based on the recommendations of independent valuation agency Haribhakti & Co. Fortis' board however agreed to a lower price of US$665 million, around 4.4 percent lower, to complete the buyout. Managing Director Shivinder Singh explained in a company statement that the purchase price was intended to only cover the cost of investments made by the founders of Fortis International for their overseas acquisitions and the multiple international businesses set up in the past year. "We felt that as a family we did not want to profit from this deal, and we therefore requested the independent committee and requested them to lower the price," Singh explained.
The proposed transaction is still subject to regulatory approval in certain jurisdictions and is expected to be concluded by mid-December 2011. According to Fortis officials, the acquisition will initially be financed through bank loans, which will increase the Indian parent company's total debt to around US$1 billion. Once the transaction is complete the firm then plans to raise capital and reduce the combined entity's debt-equity ratio starting next year, although exact details have not yet been forthcoming. "We have multiple capital raising plans already in place to do at various entities and we will announce so at the right time," Malvinder Singh said.
While questions remain about whether in fact Fortis Healthcare, with just Rs 48 crore (US$100 million) in available cash as of March 31, can fund such an expensive acquisition at this time, investors certainly indicated that they were confident enough about this development. After Fortis Healthcare announced the valuation of the upcoming transaction last Tuesday, the company's share prices rose by over 3.6 percent to close at Rs 128.35 a piece in India. At that price, the firm has a market cap worth little over US$1 billion.
Fortis Healthcare International is the group's Singapore-based healthcare delivery firm, with a multi-line presence across primary healthcare facilities, hospitals, speciality day care healthcare, and other diagnostic operations. The Singh family set up the Singapore branch, first named Fortis Global then later Fortis Healthcare International, in October 2010 to continue the group's international healthcare operations in the aftermath of their aborted corporate takeover for Parkway Holdings Ltd
, which they lost to Malaysian sovereign wealth fund Khazanah last year. Since then, the new firm has embarked on an aggressive overseas expansion strategy, using acquisitions and setting up new private hospital across the Asia Pacific region, to match the soaring global demand for quality healthcare services. Fortis' international operation have now in fact become the same size of their home Indian market operations
Today, Fortis Healthcare International operates out of nine prime international markets including Australia, Canada, Dubai, Hong Kong, Mauritius, New Zealand, Singapore, Sri Lanka and Vietnam. Amongst its most important global medical assets, Fortis Healthcare International owns Quality Healthcare Ltd, Hong Kong's largest primary healthcare network, as well as the Dental Corporation Ltd, the largest dental care group active in Australia and New Zealand. The company also holds a majority stake in two specialty hospitals in Singapore and the UAE, as well as shares in the 350 bed Lanka Hospitals Corporation
, Sri Lanka's biggest specialty hospital. Most recently, Fortis Healthcare International acquired a 65 percent stake in one of Vietnam's largest private healthcare provider groups, Hoan My Medical Corporation, for US$64 million in August. According to company filings, overall international operations are expected to generate roughly US$500 million in sales this year.
The deal will integrate Fortis Healthcare International and the public-listed Indian parent company into a combined entity, renamed Fortis Healthcare Ltd. Management structure will of course change in tow. Vishal Bali, previously heading Fortis Healthcare International, will become CEO of Fortis Healthcare Ltd. Aditya Vij will head the company's Indian operations, while Eng Aik Meng will run international business and further overseas expansion activity. Malvinder and Shivinder Singh will continue acting as executive chairman and executive vice-chairman of Fortis Healthcare respectively.
As a consolidated firm, Fortis Healthcare will be the owner of over 74 hospitals (with more than 12,000 beds combined), 190 diagnostic facilities, 580 primary care clinics and 191 day care centers across 10 countries, making it one of the leading integrated healthcare delivery networks active in the Asia and number one in India, overtaking Apollo Hospitals in the process. The newly combined company will pool the strength of over 23,000 employees, including 4,000 doctors, to better challenge the previously potential purchase, Parkway Holdings, for supremacy amongst private healthcare service providers in the Asia-Pacific region. While these two conglomerates are concentration on international expansion aimed primarily at treating local clients, their ever-expanding global healthcare networks will no doubt also be used as valued multinational medical tourism destinations
where global travelers can find high quality medical treatment at competitive prices.
In the company statement Malvinder Singh concluded that consolidating their Asian health businesses at this time would enable them to establish a firm position in a market that is only looks to grow and grow. "Our vision is to create a leadership position in integrated healthcare delivery in the pan Asia-Pacific region. This integration is a fundamental step in that direction. With the region's increasing urbanization, ageing population and greater access to new medical technologies, the demand for more and better healthcare is rising sharply. Fortis is keen to capture this opportunity. This integration provides us the model and the scale to harness the opportunity."
Fortis Healthcare Limited
Founded in India in 1999, Fortis Healthcare is a healthcare provider that currently operates 46 hospitals in India, which are organized as a hub and spoke model around their specialty hospitals. They offer laboratory, wellness, information technology, travel and financial services through the wholly owned Religare Enterprises Limited
Parkway operates 16 hospitals in Asia, with over 3,400 beds throughout Singapore, China, Malaysia, India, Brunei, and the UAE. Parkway also boasts a nursing and health science college, extensive diagnostic, imaging and laboratory resources and the largest foreign owned medical network in Shanghai.