Life Healthcare finally exits its Indian business
Stake in Max Healthcare finally to be sold to investment firm Kohlberg Kravis Roberts after tepid returns
SA’s third-biggest private hospital group, Life Healthcare, is finally exiting its Indian business after almost a year’s talks.
It said on Wednesday it will sell its stake in Max Healthcare to global investment firm Kohlberg Kravis Roberts (KKR) for about R4.3bn.
Life Healthcare took a 26% stake in Max Healthcare, one of India’s biggest private hospital chains, in 2012. It increased its shareholding to 49.7% in two further transactions, investing R2.9bn in the joint venture.
As India’s public health system is chronically underfunded, many patients use private health care, but it proved a tough market and Life Healthcare failed to get the returns investors had hoped for.
Life Healthcare CEO Shrey Viranna said exiting the Indian business will enable the company to focus on its core operations in SA, the UK, Poland and Western Europe.
"This is not in any way to detract from Max Healthcare as a group or India as a long-term market. For other investors it is still an exciting environment to be in," he said.
"In the last year, we have taken the view that our long-term growth will be in building a more integrated portfolio in SA, expanding from acute care into complementary care and diagnostics, and focusing more on the investments we have made in diagnostics and imaging in Europe," he said.
Life Healthcare has invested R2.2bn in the Polish hospital chain Scanmed, and R13.9bn in the UK-based diagnostic group Alliance Medical, according to its 2017 annual report.
KKR is to pay 80 rupees a share for Life Healthcare’s 266,997,937 shares in Max Healthcare and the final value of the transaction will be determined on the exchange rate when the deal is finalised.
The transaction, which is subject to regulatory approval, is expected to be finalised before the end of 2018.
Life Healthcare plans to use the cash to settle debt, and will then consider further investments, said Viranna.
Life Healthcare’s share price rose to close up 7.7% on the day at R26.72. It is the third-biggest private hospital group listed on the JSE, with a market capitalisation of R39.2bn, trailing rivals Netcare (R40.7bn) and Mediclinic (R64.3bn).
Fairtree Capital portfolio manager Jean-Pierre Verster said the price Life Healthcare received for its share of Max Healthcare is in line with expectations, which ranged from R3bn to R5bn.
Max Healthcare was a time-consuming distraction for the management that failed to live up to expectations, Verster said.
"Max Healthcare was always going to be a concern given the track record of other health-care companies investing outside SA, where it’s all been disappointing. It was an offshore acquisition in a part of the world where partners are very patient and do not focus on near or medium-term profitability."