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Why are Private Equity Firms Acquiring Hospitals in India?

A notable trend has emerged in India's healthcare sector in recent years: private equity firms are acquiring hospitals, particularly those in rural areas. This strategic move is not without reason; it holds significant implications for the healthcare industry and hospital owners, especially those operating small-scale facilities in rural regions.


Experts say that over the 5 years of 2018-2022, the Indian healthcare sector witnessed M&A activity with a cumulative deal value of $35 Bn, a healthy increase in deal value over the preceding 5-year period. According to Bain & Company, India is expected to host 22 healthcare deals in 2023, with a deal value of $4.6 Bn, a slight decline from 2022.


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.


Why Private Equity Firms are Acquiring Hospitals in India?


Infusion of Capital

One of the primary reasons private equity firms are eyeing hospitals in rural India is the opportunity to infuse much-needed capital into these facilities. Small hospitals often face financial constraints that hinder their ability to upgrade infrastructure, acquire advanced medical equipment, and expand services. Private equity firms inject capital by acquiring these hospitals, enabling necessary improvements, efficiencies, and expansions.


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.


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

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.


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.


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.


A few examples of acquisitions:


  • 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.



Conclusion


In conclusion, the acquisition of hospitals by private equity firms presents a promising opportunity for small hospital owners in rural India. It brings in much-needed capital, expertise, and technology, leading to improved operational efficiency, expanded services, and enhanced quality of care.


By partnering with private equity firms, small hospital owners can position their facilities for sustainable growth and better serve the healthcare needs of their communities.


 

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