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Business News/ Companies / General Atlantic, Bain in talks to buy MedPlus pharmacy chain
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General Atlantic, Bain in talks to buy MedPlus pharmacy chain

MedPlus is looking at a valuation of `2,500 crore; investment bank Credit Suisse is advising it on the sale process

Three PE investors together hold 69% stake in MedPlus while Dr Madhukar Gangadi, founder and chief executive officer, MedPlus, holds the rest. Premium
Three PE investors together hold 69% stake in MedPlus while Dr Madhukar Gangadi, founder and chief executive officer, MedPlus, holds the rest.

Mumbai: MedPlus Health Services Pvt. Ltd, the second-largest pharmacy retail chain in India, has restarted talks for a possible sell-off, after a break of almost one year, two people familiar with the development said.

This time, private equity investors General Atlantic and Bain Capital are in discussions to acquire the business, one of them said, asking not to be identified.

Three PE investors together hold 69% stake in MedPlus while Dr Madhukar Gangadi, founder and chief executive officer, MedPlus, holds the rest.

The existing investors, US-based Mount Kellett Capital Management LP, TVS Capital Funds Ltd and Ajay Piramal’s India Venture Advisors Pvt. Ltd, put their stake on the block sometime back.

MedPlus is looking at a valuation of 2,500 crore. Investment bank Credit Suisse is advising it on the sale process.

Due to a valuation mismatch and concerns over foreign direct investment in retail, the discussions between potential buyers and existing investors failed last year, said the second person mentioned above asking not to be identified.

Investment bank O3 Capital Advisors was running the sell mandate last year.

Organized pharmacy retail falls under the category of multi-brand retail. A foreign investors can buy only a 51% stake in an Indian multi-brand retail company post regulatory approval, with a minimum investment of $100 million, a 50% investment in back-end infrastructure, and a 30% mandatory procurement of products from small industries. Also, retail sales outlets can be set up only in cities with a population of over a million and only in those states that allow foreign investment in multi-brand retail.

MedPlus has 1,244 stores in 12 states and is expected to end the year with sales of 1,400 crore.

Dr Gangadi, a medical doctor with an MBA from the University of Pennsylvania’s The Wharton School, set up his first medical store in Hyderabad in 2006.

Of the 69% stake held by three PE investors, Mount Kellett holds 49% through its arm MKCP Direct Investments (Mauritius) IV Ltd, TVS Capital’s TVS Shriram Growth Fund I holds 10.59% and Piramal-led India Venture Trust Fund-I holds 9.09%, according to a company balance sheet.

Emails sent to Gangadi, spokespersons at Mount Kellett, India Venture Advisors and Bain Capital did not elicit any response. A spokesperson at General Atlantic declined to comment.

“There is an interest for new investors to grow the business, as well as allow a few older investors to exit. We believe Madhukar Gangadi will steer the course to newer shores once additional growth and other funding is completed," said Gopal Srinivasan, chairman and MD, TVS Capital Funds.

While there is widespread interest, it is too early to gauge the final front-runners and it would be against the non-disclosure and confidentiality agreements, he added.

Still, some of the concerns that delayed the deal remain unresolved, said an investment banker who asked not to be identified.

“Globally, pharmacy chains tend to trade in lower multiples of sales and operate on very thin margins. Thus seeking a premium for the asset will become difficult. In India, foreign investors cannot acquire a majority stake due to foreign direct investment regulations in the sector. So funds would also not be keen to pay a significant valuation premium for the asset as when the time comes for them to exit, it will be a complex structured sale."

The Indian pharmaceutical market is worth 90,000 crore and is mainly served through 800,000 retail stores. Of them, about 700,000 work under the apex body, the All India Organisation of Chemists and Druggists.

Among private retail chains, Apollo Pharmacy, the pharmacy chain run by Apollo Hospitals Enterprise Ltd, is the largest, with a pan-India network of over 2,000 stores. Last September, Apollo Pharmacy expanded its footprint by acquiring the pharmacy business of Hyderabad-based Hetero Med Solutions Ltd for 146 crore. Hetero’s pharmacy business included 320 outlets in Tamil Nadu, Telangana and Andhra Pradesh.

In March, Mint reported MedPlus’s plans to open 10,000 stores over the next three to four years. “MedPlus has so far invested around 170-180 crore and will need another 2,000-2,200 crore to reach 10,000 stores," Gangadi said.

Besides the pharmacy chain, MedPlus runs businesses such as MedPlus Pathlabs, RiteCure (a distributor of medical and surgical supplies to hospitals) and MedPlusMart.com (an online medical store).

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Published: 16 Oct 2015, 01:08 AM IST
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