Fortis owner IHH Healthcare had earlier planned to buy out PE firms but decided against it due to  legal wrangles between Daiichi Sankyo and the Singh brothers. (Ramesh Pathania/Mint)
Fortis owner IHH Healthcare had earlier planned to buy out PE firms but decided against it due to legal wrangles between Daiichi Sankyo and the Singh brothers. (Ramesh Pathania/Mint)

Fortis facilitating PE stake sales in SRL Diagnostics

  • Fortis, which owns 57% stake in SRL Diagnostics, is in the process of hiring Kotak Mahindra Bank to manage the stake sales
  • One of the key parts of the IHH-Fortis deal was to provide exits to private equity investors in SRL Diagnostics

New Delhi: Fortis Healthcare Ltd is facilitating the sale of stakes owned by private equity investors in its SRL Diagnostics unit, two people aware of the matter said. Fortis, which owns 57% in SRL Diagnostics, is in the process of hiring Kotak Mahindra Bank as an investment banker to manage the transaction, one of the two people said on condition of anonymity.

While IHH Healthcare Bhd, the new owner of Fortis, had earlier planned to buy out the private equity firms, the Malaysian company has decided against it because of the legal wrangle between Japanese drug maker Daiichi Sankyo Co. Ltd and the Singh brothers, the founders of Fortis, said the people cited earlier.

Private equity investors Resurgence Fund (7.5%), IFC (7.5%), New York Jacob Ballas Fund (16%) and other shareholders (12%) own around 43% in SRL Diagnostics. “As is normally the process, activities pertaining to the IM (information memorandum) approaching potential interested parties, etc. will play out over the next few months," the first person said.

SRL Diagnostics’ revenue growth trailed that of its rivals in the year ended 31 March 2018. While Thyrocare Technologies Ltd and Dr Lal PathLabs Ltd grew revenues by 17.1% and 16%, respectively, SRL’s revenue rose by just 7.4%.

When IHH took over Fortis, one of the key parts of the deal was to provide exits to the private equity investors.

In the face of legal complications that delayed the open offer for Fortis, IHH’s vision to overhaul it seems to have run into rough weather. According to the agreement to acquire control of Fortis, IHH’s fund infusion was also to be used to buy out the stake of private equity players in SRL Diagnostics.

“The dialogue on SRL didn’t materalize. However, the window is still open. IHH can jump in at any time," said the second person, requesting anonymity. Fortis has an obligation to provide an exit to the private equity investors, according to the terms of the investment contract.

An IHH spokesperson declined to comment on what he termed as market speculation. Emails sent to SRL Diagnostics and Fortis remained unswered till publishing of this story.

In July 2018, IHH Healthcare won a bidding war to acquire Fortis and completed the deal in November, buying a 31.1% stake through preferential allotment of shares. To stabilize the business, IHH infused 4,000 crore into Fortis, but an additional 3,400 crore put into an escrow account to initiate an open offer is stuck due to a Supreme Court-ordered status quo on the IHH-Fortis deal in December.

The Supreme Court had put on hold the IHH-Fortis deal, ordering a status quo with regard to sale following a contempt plea moved by Daiichi Sankyo against the Singh brothers, the former promoters of Fortis and Ranbaxy Laboratories Ltd.

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