Mumbai: Strategic investors, including a large local hospital chain, a global eye care brand and a couple of domestic corporations, are in talks to buy a majority stake in Vasan Healthcare Pvt. Ltd, which operates eye care hospitals, according to two people close to the development. One of them is directly involved in the deal.

“Though the talks are at a preliminary stage, the company has been valued at around 4,000 crore. As premium is attached to strategic investments, the valuation may rise further," said the person directly involved in the deal. “Vasan’s decision will depend on valuation and partnership."

When the deal closes, it will be one the largest mergers and acquisitions (M&A) transactions in the niche healthcare segment. Vasan’s chairman A.M. Arun will continue to hold a minority stake in the company.

A Vasan spokesperson said the “company never sought an interest for a sellout transaction and that investors approached them on their own". “A few guys came and talked and went back, we have not talked further with them," he said on the phone.

Chennai-based Vasan was founded in 2001 with one general services clinic and has since changed its focus to eye care and, subsequently, dental care, and grown rapidly. It has more than 150 centres for eye care and these are expected to increase to 200 by the next financial year. Vasan also has at least 30 dental centres.

In the past, it had attracted a significant amount of private equity investment. In one of the largest PE transactions in the Indian healthcare industry, last year, Government of Singapore Investment Corp. Pte Ltd (GIC) invested $100 million (around 600 crore today) in Vasan. Ahead of that, Vasan had raised $50 million from Sequoia Capital and WestBridge Capital in three rounds.

While it could not be ascertained how much stake the promoters hold in the company, a 15 March 2012 report by Financial Express said GIC is likely to be the second-largest shareholder (though minority) after promoters, who continue to hold majority stake in the company.

In an interview in April, Arun had told Mint that Vasan Healthcare will also venture into other services such as In Vitro Fertilization (IVF), urology, and diabetology.

Recently, Vasan acquired a few eye care centres like Jothi Eye Care Centre in Puducherry, North Bengal Eye Centre in Siliguri (West Bengal), Shekar Nethralaya and Vijay Nethralaya in Bangalore and Grover Eye and ENT Hospital in Chandigarh.

Investors’ interest in Vasan comes at a time when healthcare is emerging as a marquee sector for investments. India’s growing population, increased incidence of diseases, greater affordability, expanding insurance coverage and supportive government schemes are the key drivers of high double-digit growth expectations of the investment industry.

Health insurance penetration is expected to increase to 20% by 2017, up from 15% in 2010. The overall Indian healthcare market is around $65 billion and has grown 11% in the past five years, according to Bain and Co.’s India Private Equity Report 2013, released in May.

Experts say India’s domestic consumption theme is playing strongly on the minds of both private equity and strategic investors. Just like life insurance, strategic investors from Japan are very keen on healthcare also, said Rajiv Vaid, chief operating officer, Daiwa Capital Markets India Pvt. Ltd, citing India’s growing population, increasing rise for healthcare services and nearly no-impact of financial downturn on these businesses.

“There are many advantages of being in the healthcare segment in India and if one finds an attractive opportunity, the foreign investors will go for it. The challenge lies is in foreign currency exchange rates and getting approvals in time," said Vaid.

According to a Grant Thornton report, healthcare, pharma and biotech contributed 6% to the overall M&A deals in the third quarter of calendar year 2013. So far, in the first three quarters of the year, there have been 377 deals worth $23.9 billion. There were 120 M&A deals worth $10 billion in the third quarter. Harish H.V., partner, India leadership team at Grant Thornton, said M&A transactions will only increase except for the pharma manufacturing sector which is getting impacted by regulatory hurdles. “In the hospitals segment, lots of people are trying to expand to create large chains to boost the topline. Everyone wants to create a chain effect," Harish said.

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