Mumbai: Renuka Ramnath’s Multiples Alternate Asset Management Pvt. Ltd is set to take a controlling stake in Mysore-based hospital chain Vikram Hospital for about Rs.130 crore.
The transaction will have the private equity (PE) firm investing directly in the company (known as primary investment, in PE parlance) as well as buying the stake currently held by the hospital chain’s existing investor, ICICI Venture (or secondary investment), according to at least four people close to the transaction, none of whom wanted to be identified.
“Multiples Alternate Asset has offered the final binding term sheet for the deal and the transaction is expected to close soon,” said one of the four persons cited above.
Vikram Hospital runs seven hospitals in Karnataka state with a total bed capacity of about 540.
This will be Multiples Alternate Asset’s first investment in healthcare. According to the PE firm’s website, it has so far invested in five companies, including Sara Sae Pvt. Ltd, Indian Energy Exchange Ltd, Cholamandalam Investment and Finance Co. Ltd, South Indian Bank and PVR Cinemas.
“Multiples Alternate Asset Management will buy the stake of I-Ven Medicare (an arm of ICICI Venture) for about Rs.90 crore, giving them an exit,” said one of the four persons cited above. “The primary capital investment is about Rs.40 crore and will be a function of the debt that the company needs to pay.”
In early 2008, I-Ven Medicare had invested Rs.72 crore in Vikram Hospital for 64% stake. Interestingly, the investment was made when Ramnath was heading ICICI Ventures. In 2009, she quit the PE firm and later started Multiples Asset Management.
Emails sent to Ramnath and S.B. Vikram, managing director, Vikram Hospital, did not elicit any response. ICICI Ventures’ spokesperson declined to comment.
“This transaction is sort of a restructuring deal. The company needs Rs.40 crore to Rs.50 crore, the lack of which has impacted its performance. The funding is for the stability and viability of their operations,” said one of the three persons cited above.
The investment reaffirms the increasing rise of secondary deals in the country. Secondary deals refer to PE firms selling off stake in a portfolio company to another PE investor. Given the tepid public offerings market, PE firms have become keener about trading stakes among themselves. Many of these investment firms are also reaching the end of their investment cycles, raising the possibility of increased activity in secondary deals, which currently form barely 5% of the PE investment space in India.
Bharat Banka, chief executive, Aditya Birla Capital Advisors said the trend of PE to PE secondary sales is getting stronger and could last a few more years. The primary reason for this is that fresh capital raising is slowing down, he said.
“Most companies have put their expansion plans on hold, except for a few high-growth industries. Seven out of 10 industries are refraining to commit further investments in growth,” Banka said.
On the issue of PE firms investing in financially distressed but viable business models, he said, eight out of 10 companies, in infrastructure, manufacturing, etc., are debt laden or short of working capital. “Their earnings’ growth is slowing down while loans remain outstanding. There are multiple companies looking for refinancing working capital or correcting debt-equity structure,” he said.
Meanwhile, healthcare continues to generate both PE and strategic interest.
Healthcare ruled the deal-value score card in the first quarter of this year in mergers and acquisitions (M&A) deals.
The sector accounted for 47% of the total M&A deal value during the period, which stood at $4.76 billion across 199 deals, according to VCCEdge estimates, which tracks investment activity in the country.
There were 13 healthcare deals worth $120 million during the quarter.