Mumbai: The takeover battle for Care Hospitals has landed up in the Bombay High Court with Max Healthcare Institute filing a suit against private equity firm TPG after the Care owner spurned Max’s bid in favour of an offer by Blackstone, the world’s largest PE fund, that was about 15-20% higher, said people with knowledge of the matter. Hearings are set to begin May 3, they said. The Max offer was said to be valued at ₹3,700 crore and had an option to buy Care’s Bangladesh assets after running them for 2 years, ET had reported April 21.

The Abhay Soi-led Max Healthcare is citing breach of their term sheet agreement over a “specific performance” clause. Under this, TPG should specify why it is not honouring an agreement, according to one of the persons cited above. Their legal move has been precipitated by Blackstone improving its offer after the sale process for Care was revived earlier this year once valuation expectations were lowered from the original ask of ₹7,000-8,000 crore.

Bangladesh Assets
Sources close to Max said their offer was “shopped around to Blackstone despite a non-disclosure and exclusive agreement”.

Max is being represented by Harish Salve and senior advocate Janak Dwarkadas.

Max and TPG had entered into “deal exclusivity” for bilateral negotiations late March, according to sources close to Max, ET had reported April 21.

As per the terms of the agreement, Max had given a non-binding offer to TPG within the stipulated six-week window for a buyout, said people in the know. But the Max offer was a structured agreement with an option on the Bangladesh assets after two years – it wanted to run the operations for two years before making an offer to buy it. The Blackstone offer is said to be inclusive of the Bangladesh assets from day one.

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 targeted to expand 15-29% in FY23. However, the chain failed to achieve this, impacting its valuation multiple.

Among the largest hospital chains in India, Care Hospitals has a predominantly south Indian footprint that would give chains like Max a pan-India presence. 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 that year, to consolidate and deepen its presence in fast-growing tier 2 markets.

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.

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.

Soi, chairman and MD, Max Healthcare was unavailable for comment. TPG declined comment and Blackstone didn’t respond to queries.

Sources close to TPG say the Max offer was non-binding and conditional whereas the Blackstone counter is a “cleaner structure and higher bid”. However, sources close to Max said the term sheet has a clause that stipulates the seller “undertakes to sell” to the buyer if the buyer is desirous of doing so at the agreed price and commercials as agreed on the term sheet.

ET was the first to report November 7, 2022, on Blackstone and Temasek-backed healthcare platform Shears emerging as frontrunners in a keenly contested bidding process that had also seen interest from CVC Capital, Carlyle, the Ahmedabad-based Torrent Group and even Max, which had held exploratory discussions. But last month, Shears closed out its negotiations with Manipal Hospitals’ promoters Ranjan Pai and family instead, taking a controlling stake in the Bengaluru-based chain at a Rs 40,000 crore-plus valuation.

With Manipal and Temasek forging broad industry level consolidation, Blackstone made a determined push for assets.