Max Healthcare Institute has emerged as the frontrunner to buy Care Hospitals from TPG, following a year of stuttering negotiations for the sale of the hospital chain, said people with knowledge of the matter. Talks with multiple parties have been hampered over disagreements over valuation and the chain’s international footprint.

Max and TPG signed “deal exclusivity” for bilateral negotiations late last month. As per the terms of the agreement, Abhay Soi-led Max has already given a firm offer to TPG within the stipulated six-week window for a buyout, said people in the know. The Max offer–a structured agreement with an option on the Bangladesh assets–could see Care Hospitals’ valuation at Rs 5,500-6,500 crore, said the people mentioned above.

According to one of the persons, Max is keen to retain the option of buying the Bangladesh assets later after managing it for a certain period. Depending on the final terms, the deal and valuation granularity will become clear in the coming weeks.

The other contender in the background is Blackstone, the world’s largest PE fund. It had been the sole contender for Care last December after Temasek-backed Shears backed out to pursue Manipal Hospitals. TPG and Blackstone differed on valuation, including the one for the Bangladesh assets, and the talks didn’t progress.

ET was the first to report November 7 on Blackstone and Shears emerging as frontrunners in a keenly contested bidding process that had also seen interest from CVC Capital, Carlyle, Ahmedabad based Torrent Group and even Max, which had held exploratory discussions.

Earlier this month, the Singapore-government backed healthcare entity Shears closed out the Manipal negotiations with promoters Ranjan Pai and family, taking a controlling stake in the Bengaluru-based chain at a Rs 40,000 crore-plus valuation.Once it became clear Manipal and Temasek were catalysing a large industry level consolidation, Blackstone came back with a revised offer. By then, as the Care process got kickstarted late January, Max had been sounded out. So was KKR–fresh from its $2 billion bumper exit from Max Healthcare–by sell-side advisors Barclays and Rothschild besides TPG. People directly involved in the negotiations were hopeful that with valuation expectations coming down to Rs 5,800-6,000 crore from the original Rs 7,000-8,000 crore ask, a deal would finally get inked.

KKR was the original backer of Soi-led Radiant Healthcare, which subsequently merged with listed Max Healthcare.

“The onus is on TPG to sign the share purchase agreement,” said a person in the know. “Else like AMRI of Kolkata this transaction too might end up in a legal soup.”

The 2,400-bed hospital chain Care is owned by TPG Growth platform Evercare. In 2018, Evercare acquired the healthcare portfolio of UAE’s Abraaj Growth Markets Health Fund, which owned a majority stake in Care Hospitals.

Max was not available for comment. TPG and Blackstone declined to comment.

Pan India Footprint
Among the largest hospital chains in India, Care Hospitals has a predominantly south India footprint that gives players like Max a platform to emerge as a pan-India player. Started in 1997 as a 100-bed cardiac hospital in Hyderabad by cardiologists B Soma Raju and N Krishna Reddy and their associates, Care has expanded into a cross-border network of 17 healthcare facilities with more than 2,400 beds offering 30 clinical specialties in six Indian states and Bangladesh. It has two hospitals in Dhaka with 1,000 beds.

Through the acquisition of Indore-based CHL Hospitals, Care added 250 beds in July 2022. In the same month, it took a “significant majority” stake in Aurangabad-based United Ciigma Hospital, its third such deal since April, to consolidate and deepen its presence in fast-growing tier 2 markets.

Care Hospitals was expected to post revenue of Rs 2,788 crore ($340 million) in FY23 with an ebitda of Rs 615 crore ($75 million) against Rs 1,680 crore ($211 million) revenue and Rs 376 crore ($47 million) ebitda in FY22, said one of the persons cited above. Revenue was expected to expand 15-29% in FY23. However, the chain failed to achieve the target, impacting its valuation multiple.

Max operates 17 facilities in India with over 3,400 beds, out of which 3,271 were operational in the December 2022 quarter, which saw 68% occupancy. FY22 occupancy was 75%, said a Care Ratings report.

The group, including three trusts, had 2,200 doctors, 5,800 nurses, and 1,000 consultant physicians as of March 31, 2022.

Max Healthcare has more than doubled its ebitda from Rs 590 crore in FY20 to Rs 1,390 crore in FY22. Average revenue per occupied bed (ARPOB), occupancy, ebitda per bed and return on capital employed (ROCE) are the best in class, said a recent Jefferies report. The brokerage sees 1,500 beds being added by FY25, which puts plans well on track.

The Max board has approved a resolution to raise Rs 4,200 crore through non-convertible debentures (NCDs) for future M&A activities but also guided that the net debt-ebitda ratio will not exceed 2 to 2.5x. The stock has risen fourfold since its listing in 2020.

With bigger players like Manipal and Max on a buying spree–Manipal is said to be acquiring AMRI Hospital from the Emami family in Kolkata as well as the Kerala-based KIMS chain–the space is witnessing a spate of M&As. The Indian healthcare delivery industry grew at a CAGR of about 12-14% over FY16-20 and is estimated to reach about ?7.3 lakh crore by FY24.

Since the pandemic, the industry has witnessed a sharp recovery in top line driven by higher occupancy, the release of deferred non-Covid surgeries, higher ARPOBs and increased bed capacity at hospital chains.