Decoding Baring's purchase of Hinduja Group's healthcare services

Private equity major Baring and the IT industry have had a long relationship. Mphasis, Coforge, Hexaware are some of its investee companies. Two years ago, Baring Private Equity Asia made another move by buying Virtusa, a Nasdaq-listed IT services and digital engineering company, for $2 billion in an all-cash deal.

The most recent move has been the buyout of the healthcare services business owned by Hinduja Global Solutions (HGS). To be carved out from the existing company, the deal was struck at $1.2 billion, equivalent to a 3x the company's $400 million revenue and 12x EBITDA. From a strategic point of view, it gives Baring a serious foothold in business process outsourcing (BPO) and completes a key piece in the overall IT/ITES story. It has already acquired Citiustech, a healthcare technology services and solutions player, and AGS Health in the medical revenue cycle management space. In terms of size, the buyout of HGS is a big-ticket one.

What makes HGS so critical is that 54% of its Rs 5,600 crore (around $750 million) revenue comes from healthcare services, with the rest largely being split across telecom, consumer, banking and financial services. HGS started off as Ashok Leyland Information Technology in the early 1990s. A subsequent merger with Hinduja Finance Corporation led to the creation of the new entity. The current decision to sell the biggest chunk of the HGS pie is in line with the Hinduja group’s strategy of spotting the valuation opportunity. The best example of this was when they sold their minority 5% stake in 2006 in the then Hutchison Essar for $450 million; the estimated return was said to be upwards of 20x. Now, in the case of HGS, the pandemic has ensured that growth in healthcare services will sustain for a while.

Industry trackers are quick to point out the big story playing out in healthcare. “The stimulus in the US for healthcare will only continue to grow. Besides, the pandemic has seen an increase in overall healthcare consumption and that is unlikely to change,” says the head of a large private equity fund. Understandably, that has only helped the cause – an increase in the number of admissions in hospitals means more transactions for companies like HGS. That must be music to the folks at Barings.