The healthcare landscape in India is undergoing a significant transformation, with private equity (PE) firms increasingly acquiring hospitals, especially in underserved rural areas. This trend is reshaping the industry, bringing in fresh capital, advanced expertise, and operational efficiencies.
But, what drives these investments, and what are the broader implications for hospital owners, patients, and the Indian healthcare ecosystem?
The Surge in Private Equity Investment - Healthcare
India’s healthcare sector has been a hotbed of M&A activity, with a cumulative deal value of $35 billion from 2018 to 2022.
The momentum only grew stronger post-pandemic, with healthcare investments hitting a record $5.5 billion in 2023, according to the Bain India PE Report 2024.
Single-specialty hospitals have garnered particular interest, receiving 20% of the capital raised for healthcare.
And, PE firms’ hunger for Indian healthcare assets will only increase.
A doctor, who runs a successful eyecare practice in a small town in Maharashtra and recently declined to sell to the 2 fastest-growing eye care chains, ASG Eye Hospital and Dr. Agarwal’s Healthcare, both offering as much as 12-17X the EBITDA.
The frantic M&As currently underway in the hospital industry are gunning for the“ multiple arbitrage” that a booming stock market offers.
A $60 Billion Opportunity
As per the estimates by Bain & Co., and HealthQuad, India’s healthcare innovation market may double to $60 billion by 2028, driven by increased consumer demand, changes in the global healthcare value chain, advancements in Indian scientific and technological capabilities, and favourable regulatory conditions.
A Few Examples of Acquisitions:
Of the 80+ PE-VC deals in healthcare since 2020 (Covid-19 period), 18 have been buyouts, most of them in 2023 alone.
Singapore's sovereign wealth fund Temasek bought an additional 41% stake in Manipal Health Enterprises (one of the country's largest hospital chains - 29 hospitals in 16 cities, with ~8,300 beds) for more than ₹16,300 Crores ($2 Bn), thereby expanding its total shareholding to 59%. This is considered to be the largest deal in the Indian healthcare sector.
Blackstone, the US-based private equity fund acquired controlling stakes in two South-based hospital chains – CARE Hospitals and KIMS – creating India’s fourth largest hospital platform in India for more than ₹8,300 Crores ($1 Bn).
Max Healthcare Ltd acquired Nagpur-based Alexis Multi-Speciality Hospital Pvt Ltd for an enterprise value of ₹412 crore, the biggest in Nagpur at a premium of ₹2 Cr per bed.
In Dec-2023, Max Healthcare acquired 550-bed Sahara Hospital for an enterprise value of ₹940 Crores (~$113 Mn) to expand its presence in Tier-I & 2 cities.
Aster DM Healthcare acquired 57.5% of Ramesh Hospitals for approx ₹200 Crores. Thereby adding 710 beds to Aster DM Healthcare’s existing capacity, totaling 4,317 beds.
KKR's Asian Fund IV bought 70% stake in Baby Memorial Hospital (BMH), a Kerala-based multi-specialty hospital chain in India for ₹2,000 crore, valuing the multi-specialty hospital chain at ₹2,500 crore (1-Jul-2024).
These acquisitions signal a broader strategy: scaling operations, improving efficiencies, and capturing value in an evolving healthcare market.
PE-VC Deals in Healthcare
A Major Exit
KKR had sold its Max Healthcare stake in 2022 for around ₹9,400 crore, marking its largest exit from an Indian firm. KKR is re-entering Indian healthcare to build a “platform”, the new PE buzzword and a euphemism for their complex capital stacks and shared interests.
Poster CEO
The industry has a poster CEO in Abhay Soi, a finance and restructuring specialist from the erstwhile consulting firm Arthur Andersen, Soi teamed up with KKR to buy out Max Healthcare Institute in 2018 and took it public in 2020. As a promoter, he owns nearly 24% of Max, which is the most-valued hospital today in terms of relative valuation - trading at an EV/EBITDA multiple of 53X, higher than the 37X of closest competitor, Apollo Hospitals.
A Notable IPO
Nephrocare India, a Kolkata-based, doctor-run single-specialty hospital successfully completed its IPO of ₹41.26 Cr.
The Impact
A spot in the Top-3 Hospital chains, was it the only reason why Aster DM Healthcare merged CARE Hospitals? Or, did Blackstone orchestrated the merger to make a $5Bn valuation?
Here's the tally in terms of Revenue; No. of Hospitals; Total Beds; Average Revenue Per Occupied Bed (ARPOB), 2024:
Manipal Hospitals: ₹6,500 Crore ($766 Mn) | 37 Hospitals | 10,700 Beds | ₹55,279 ($650) | Backed by Temasek
Apollo Hospitals: ₹9,867 Crore ($1.16 Bn) | 51 Hospitals | 10,500 Beds | ₹57,488 ($675) | Backed by Advent
Aster DM Healthcare: ₹7,300 Crore ($861 Mn) | 38 Hospitals | 10,166 Beds | ₹40,100 ($475) | Backed by Blackstone
All 3 claim to aggressively expand by additional 3,000+ Beds by FY28, with a dry powder of ₹5,000 Crore ($590+ Mn) for investments. This exponential expansion does convey that the healthcare will become costlier, which isn't entirely wrong.
The Average Revenue Per Occupied Bed (ARPOB) for major private hospital chains in India increased from an estimated ₹45,800 ($540) per bed per day in FY-23 to ₹49,800 ($590) per bed per day in FY24, an increase of 8.5% y-o-y - ICRA.
So, why are Private Equity Firms Acquiring Hospitals in India?
Let's delve into why private equity firms are keen to acquire hospitals and what it means for owners of small healthcare establishments in India's hinterlands.
Infusion of Capital
Small and mid-sized hospitals, especially in rural India, often struggle with outdated infrastructure and limited resources. Private equity firms bring the financial muscle to upgrade facilities, purchase cutting-edge equipment, and expand services. Thereby, enabling necessary improvements, efficiencies, and expansions.
You buy ₹10 crore of EBITDA [business] for ₹150 crore, and then you list to get the same at ₹450 crore. There’s such a shortage of quality health care stocks; Rainbow [paediatric chain] is trading at 33X EBITDA - a Partner at a PE firm.
There's a torrential supply of money in the markets, driving up valuations to crazy levels. To temper that, banker Uday Kotak has called for more equity supply.
Access to Expertise
Private equity firms bring a wealth of experience and expertise in healthcare management and operations. They have access to a network of doctors, and professionals with specialized knowledge in areas such as hospital administration, healthcare technology, and regulatory compliance.
Hospitals like Max have the money and the vision to buy the latest equipment and use technology to position themselves for a certain type of care.
For small hospital owners, this means gaining access to invaluable resources and guidance to enhance the efficiency and quality of healthcare services provided. Besides the obvious FOMO frenzy, the most important step in setting up a hospital is not the building or medical devices ... it's the Doctors. They are the biggest asset of an M&A in healthcare.
Scale and Efficiency
Single specialty chains are by design capital efficient and can achieve better economics of delivery, said a PE firm executive. Through consolidation and operational optimization, private equity firms can help small hospitals achieve economies of scale.
By streamlining processes, negotiating better deals with suppliers, and implementing best practices in healthcare management, these firms can enhance operational efficiency, reduce costs, and improve profitability. This translates to better financial health for the hospital and sustainable growth in the long term.
Technology Integration
In today's digital age, technology plays a crucial role in delivering quality healthcare services. Private equity firms often prioritize investments in healthcare technology solutions, such as electronic health records (EHR) systems, telemedicine platforms, and diagnostic imaging equipment. Integrating these technologies into rural hospitals can improve patient care, enhance diagnostic capabilities, and facilitate remote consultations with specialists.
Using CRM tools to discharge patients faster, sell them homecare packages, and enrol new patients faster are features that many in the industry would like to emulate.
Expansion of Services
Acquisitions by private equity firms often pave the way to further expand healthcare services in rural areas, such as the introduction of specialized medical treatments, the establishment of outreach programs for preventive care, and the recruitment of skilled healthcare professionals. As a result, patients in rural communities gain access to a broader range of healthcare services without having to travel long distances to urban cities.
With Soi at the helm, the pendulum at Max has swung, The entire machinery is geared toward getting patients from “upcountry who'd need surgeries beyond hernia and gallbladder”. Its consulting and professional fee expenses rise in tandem.
Quality Improvement
Private equity firms place a strong emphasis on quality improvement initiatives, including clinical protocols, patient safety measures, and accreditation standards. By implementing rigorous quality assurance programs, they strive to enhance the standard of care delivered by acquired hospitals.
For small hospital owners, this focus on quality can lead to improved patient outcomes, increased patient satisfaction, and enhanced reputation within the community.
You don't want to be in a hospital that is optimising for cost. Hospitals should adhere to the ‘family test'. Will you want your family member to be treated here without anyone knowing they're your family? If the answer is yes,you pass the test. Ajay Bakshi, Co-founder, Neurance Al. As things stand today, such “family tests” don't exist.
The Double-Edged Sword of Private Equity in Healthcare
While PE investments bring undeniable benefits, they come with certain risks and challenges.
1. Profit-Driven Motives
Critics argue that private equity’s primary focus on financial returns can sometimes overshadow patient care. Rising costs and an emphasis on profitability may lead to increased healthcare expenses without proportional improvements in quality.
In pre-Soi days, there was no focus on sales. Now, there’s a far greater focus. The Average Revenue Per Occupied Bed (ARPOB) at Max is the highest in the industry.
They are all looking at the same sick person with greedy eyes” to achieve 3 monetary goals. The PEs want to multiply their investment, the insurers want to minimise payout and maximise business, and hospital chains want to maximise EBITDA, and even increase volume of patients.
“It’s the law of the jungle - go for the weakest.”
2. Impact on Local Healthcare Ecosystems
Private equity’s growing influence risks marginalizing smaller, independent healthcare providers. By consolidating resources and dominating markets, PE-backed hospital chains could create monopolistic tendencies, leaving smaller players struggling to compete.
The “platforms” (backed by PEs) are not only bringing care to the underserved but are also undercutting local doctors - even offering services for free and creating a “feeder system” for patient supply.
3. Short-Term vs. Long-Term Goals
Private equity firms often aim for quick returns, which may not align with the long-term goals of sustainable healthcare delivery. This can result in a misalignment of priorities, with an overemphasis on financial metrics like EBITDA.
A recent data from the US, where PEs have spent more than a trillion dollars in the last decade consolidating hospitals - the data isn’t looking pretty - cost to patients and payers increases without a beneficial impact on quality.
Repercussions: A Need for Caution
PE money coming in healthcare delivery may seem like pixie dust on a creaking system. But, a PE is not a natural owner of a hospital - Sameer Mehta, Vice-chairman, Dr. Mehta's Hospital - Chennai.
Notably, the Doctor-run Hospitals in Tier-2 are truly worried for the future with a dilemma of either to Expand, or get Acquired?
They don't have the muscle power of a fund backing them, unlike large hospitals:
➡ Temasek backing Manipal Hospitals
➡ Blackstone backing Aster DM Healthcare
➡ Advent backing Apollo Hospitals
These funds cumulatively have over ₹10,000 Crore ($1.18 Bn) of dry powder for expansion.
Not a level playing, since the SME hospitals have to rely only on their profits or banks for expansion, and have built their brand over decades through Patient Trust.
The healthcare sector in India, already grappling with limited government spending (around 2% of GDP), could face challenges if profit motives dominate over patient care.
The U.S. healthcare system offers a cautionary tale, where PE-driven consolidation has sometimes led to higher costs for patients without proportional improvements in quality.
India, which still has 15-20 years of healthcare infrastructure built-out ahead, must strike a balance, ensuring that private equity investments enhance healthcare delivery without compromising affordability or accessibility.
Conclusion: A Transformative Opportunity
The influx of private equity into India’s healthcare sector represents a transformative opportunity for small hospitals, particularly in rural areas. With fresh capital, expertise, and technological integration, PE-backed hospitals can modernize infrastructure, improve operational efficiency, and expand services.
However, it’s essential to tread carefully. Policymakers, hospital owners, and PE firms must collaborate to ensure that financial gains do not come at the expense of patient care and accessibility. Done right, this trend could bridge critical gaps in India’s healthcare system, creating a win-win scenario for investors and communities alike.
Sources: Google, Piyush Sanduja, The Ken & Others.
Resources:
Private Hospitals - Profitability
Private Hospitals - Market Cap
Medical Tourism from Neighboring Countries
Content updated on 2-Jan-2025.
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