ICRA maintained a stable outlook on the health sector.
ICRA maintained a stable outlook on the health sector.

Healthcare M&A deals worth 7,615 crore in FY19 highest in over 5 years: report

  • Total value of M&A transactions in health sector in FY19 records an increase of 155%, says ICRA report
  • Two largest deals in FY19 are the acquisition of stakes in Fortis Healthcare for 4,000 crore and in Max Healthcare for 2,351 crore

NEW DELHI : Despite the stress on performance of health sector due to regulatory restrictions, the value of merger and acquisition (M&A) deals in the sector jumped by a record 155% at 7,615 crore in FY19, a report said on Monday.

The total value of M&A transactions in the hospital sector in FY19 recorded an increase of 155% amounting to 7,615 crore, the highest value in the sector in over five years, as against transactions worth 2,991 crore done in FY18, according to rating agency ICRA.

The credit goes to the two largest transactions in FY19 which includes acquisition of stakes in Fortis Healthcare for around 4,000 crore and Max Healthcare for 2,351 crore. In both these cases, the deal has been signed at a premium to the then prevailing market price, the report noted.

"Two largest transactions in FY2019 are the acquisition of stakes in two listed entities -- Fortis Healthcare Limited, 4,000 crore, and Max Healthcare Limited, 2,351 crore. In both these cases, the deal has been signed at a premium to the then prevailing market price," it said.

According to ICRA, the total value of M&A transactions in the hospital sector in FY2019 amounted to 7,615 crore, as against transactions worth 2,991 crore done in FY2018, recording an increase of 155%. This is the highest value of M&A transactions in the sector in over five years and hence a new record.

Kapil Banga, assistant vice president, ICRA, said in a statement, “A majority of the deals involve acquisition of stake in multi-specialty hospitals rather than a single specialty hospital/chain and the target companies had a substantial portion of their operations in Metros and Tier-I cities. Consolidation is a better option for the players as the gestation period for investments in hospitals is already high due to large upfront investments and the longer time needed to ramp-up the utilisation of assets. Further, the recent regulatory actions have increased the gestation period further, thus increasing the funding requirement of the sector and necessitating consolidation."

The report noted that the private players had witnessed many years of healthy growth in revenues as well as profits, up till FY2017. However, it recorded diminishing returns in FY2018 and FY2019 due to pressure on margins (after a slew of regulatory actions, including caps on prices of oncology drugs, cardiac stents and knee implants) and the advent of the GST, leading to higher indirect tax burden and restrictions placed by the governments of the Delhi, West Bengal and Karnataka.

Overall, ICRA maintained a stable outlook on the sector and holds that the performance of the hospital companies has likely bottomed out and the sector is likely to witness an improvement over the medium-term, though any incremental regulation may have a transient impact. Further, the demand for quality healthcare will be supported by the rising per capita income, increasing penetration of medical insurance, riding healthcare awareness and double-digit growth in medical tourism.


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