Malaysia's Sime Darby Group and South African co Netcare in talks to buy 51% of Vasan Healthcare

MUMBAI: Vasan Healthcare owner AM Arun and its three private-equity investors are in talks with two overseas strategic investors and clutch of PE funds to sell up to a 51% stake, valuing the eye- and dental-care chain at about Rs 7,000 crore, several people with knowledge of the matter said.
Malaysian conglomerate Sime Darby Group and South African hospital operator Netcare, as well as the Carlyle Group, Apax Partners and Warburg Pincus are in talks with the existing investors and the expected price for the stake is about Rs 3,570 crore, one of the people said.

The Malaysian group is ahead in the talks, this person added. Singapore’s government-owned GIC, Sequoia Capital and Westbridge Capital have invested $120 million in Vasan. GIC had put in $100 million for a 22% stake, while Sequoia owns 18% and Westbridge, 3% of the company. Arun, Vasan’s chairman and managing director who launched the company’s first eye-care facility in 2002, holds a 57% stake.

“Around 51% will be sold with the promoter also selling part of his stake,” a second person involved in the deal said.

Spokespeople for Sime Darby and Netcare didn’t respond to emails seeking comment, while executives of the three PE suitors couldn’t be contacted late Sunday. GIC's India spokesperson as well as WestBridge Advisors Managing Director KP Balaraj and Sequoia Capital Managing Director VT Bharadwaj also didn’t respond to emails. Both Balaraj and Bharadwaj are on Vasan’s board.

Muted growth in their home markets is pushing Sime Darby and Netcare to look for acquisitions in developing countries like India.

While Sime Darby wants to be a dominant player in the Southeast Asian region, Netcare is looking to grow beyond its home turf.

Vasan, which has grown manifold with a country-wide network now, offers growth potential for both.

In a nation where 80% of blindness is avoidable but lack of healthcare infrastructure is a chronic problem, Vasan runs more than 175 eye-care and 30 dentalcare facilities.

In 2012, a World Health Organization report stated that India has an estimated 12 million blind and an additional 456 million people who require vision correction.

Founded in 1947 as a drug store, Vasan has grown inorganically, purchasing Jothi Eye Care Centre in Puducherry, North Bengal Eye Centre in West Bengal’s Siliguri, Shekar Nethralaya and Vijay Nethralaya of Bangalore and Grover Eye and ENT Hospital in Chandigarh. The unlisted chain reported an operating profit of Rs 180 crore on revenue of Rs 750 crore in the fiscal year ended March 31, 2014.

In May 2014, the three PE investors along with Arun invested Rs 300 crore through a rights issue. The proceeds were used to make the company debt-free. Vasan was valued at Rs 3,000 crore for that fund infusion. Sale of a controlling stake usually carries a premium. PE investments in Indian healthcare companies have risen in the past few years. In 2011, there were 29 investments and it shot up to 45 in 2012 and 71 last year. There were also many exits with multifold returns.

In 2013, Apax Partners exited from Apollo Hospitals for $360 million, three times its initial investment in 2007.

Also last year, Avenue Capital sold its stake in Gurgaon-based Medanta for $155 million, making a return of more than four times its investment in 2006. The number of exits in the sector rose from three in 2012 to nine in 2013. Most of the exits have been through secondary sales to other PE funds.

India's healthcare sector had grown to $78.6 billion in 2012 from $45 billion in 2008, and is expected to be worth more than $158 billion by 2017, consultant KPMG said in a recent study.