India's second largest hospital chain Fortis Healthcare is now well and truly in the midst of a bidding war with the original suitor-Manipal-TPG combine-making its third offer for the healthcare chain after the Fortis board recommended that shareholders accept the Munjal-Burman offer. On Monday, Manipal-TPG revised their offer to Rs 180 per share from its earlier offer of Rs 160 apiece, which is 8 per cent higher than the current winner Munjal-Burman combine. This entails investing Rs 2,100 crore into Fortis as against Munjal-Burman's proposal of Rs 1,800 crore. Besides these two proposals, Fortis also has offers from Malaysia's IHH Healthcare Berhad (Rs 175 per share) and KKR-backed Radiant Life Care (infusion of Rs 1,200 crore). The bidding war has raised the value of each Fortis share nearly 50 per cent from the lowest offer of Rs 126 per share to Rs 175 per share. So what makes Fortis so valuable?
In terms of pan-India image, Fortis has built a brand equity that can be matched only by the Apollo Hospitals Group in India. The Fortis network has four JCI accredited hospitals, 19 NABH accredited hospitals, 6 NABH accredited blood banks and 15 hospitals with NABH accredited Nursing programmes. The contribution of international sales to the overall revenue of the hospital business stood at 10.6 per cent (Rs 395 Crore) in 2016/17, growth of more than 10 per cent over the previous year.
The healthcare verticals of the company primarily comprise day care specialty, diagnostics and tertiary and quaternary care. The company has a network of 45 healthcare facilities (including projects under development) with approximately 4,800 operational beds and the potential to reach over 9,000 beds. In India, the company is one of the largest private healthcare chains comprising a network of 41 healthcare facilities, including 32 operating facilities, three satellite and heart command centres located in public and private hospitals and six healthcare facility projects which are under development or are greenfield land sites. In addition, its Indian diagnostics business has a presence in over 600 cities and towns, with an established strength of 356 laboratories, including 183 self-operated laboratories,120 laboratories inside hospitals (including 27 labs located in Fortis healthcare facilities), four wellness centres and five international laboratories.
It is one of the best known hospitals in the country for new cutting edge treatment programmes. Fortis has taken the lead in Robotic Surgery in Delhi-NCR by deploying the latest 4th generation Da Vinci Xi System at Fortis Memorial Research Institute (FMRI), Gurugram and Fortis Escorts Heart Institute (FEHI), New Delhi. It has some of the most successful organ transplantation - heart, liver, bone marrow - programmes in India.
Uncertainties surrounding the legal issues its promoters - brothers Malvinder Mohan Singh and Shivinder Mohan Singh - have been grappling with due to their litigation with Japanese drug major Daiichi Sankyo over the sale of their pharmaceutical company, erstwhile Ranbaxy, had taken a hit on the valuation of Fortis. The associated risks in acquiring an asset that might have legal complications in future had prevented suitors from proposing a fair value to the company. The cash flow crisis, which in turn impacted the revenues of Fortis and its growth plans had also driven down its value. Industry experts believe that the growth potential makes it a much desirable value proposition even today.
The sector is extremely promising. India Brand Equity Foundation (IBEF), estimates that domestic healthcare industry will touch $280 billon by 2020, from an estimated $160 billion in 2017. Sovereign funds like Khazanah Nasional Berhadof Malaysia, foreign hospital chains like Life Healthcare, South Africa, private equity funds like TPG and domestic corporate players have all shown interest in healthcare assets in India. The biggest problem before them is not funds but availability of a suitable acquisition target. Fortis, given its size and scale of operations, is thus a dream opportunity that most will find it difficult to let go.