KKR finds ways to boost Max Healthcare’s Ebitda

PE firm to synergise hospital businesses; Radiant to emerge as significant player

Private equity fund KKR, which uses Radiant Life Care as a vehicle for its health care forays, is putting together a strategy for Max Healthcare it is going to acquire from South Africabased Life Healthcare. KKR-backed Radiant disclosed its binding offer late on Wednesday and said it would buy 49.7 per cent stake in the hospital chain. KKR owns a 49 per cent stake in Radiant with Abhay Soi holding the rest.

KKR’s strategy, sources said, is centered around improving Max Healthcare’s Ebitda margins by bringing in cost efficiencies without compromising on its quality of services. Max’s Ebitda margins fell to 8.5 per cent in FY18 from 11.4 per cent a year ago.

Radiant, which acquired the 650-bed BLK Hospital in Delhi, and Nanavati Hospital in Mumbai, has been working on an Ebitda margins ranging from 16-18 per cent in these hospitals. KKR is also looking at possible areas of synergy between Max and other hospitals, which could include leveraging doctors across hospitals if regulation permits.

Soi is expected to be the KKR’s key representative to oversee the running of the business with Max management.

With joint management of the Max Hospitals, Radiant will become an important

player in the healthcare segment with more than 3,500 beds (Max has 2,500 beds), bulk of which will be in north India, especially in Delhi. Apollo Hospitals is on the top of the pecking order with over 10,000 beds. But Malaysia-based IHH, which has more than 2,750 beds with the acquisition of Global and Continental Hospitals, is closing in on its rival as it is all set to add in 4,600 more beds from Fortis. Radiant has offered to pay ~80 a share totaling $293 million, which sources say is a substantial premium on the intrinsic value of the business they are buying. The shares of Max India, a listed entity, holds a 50 per cent equity in Max Healthcare and also has stakes in other businesses, including a 51 per cent in Max Health Insurance (Max-Bupa), and 100 per cent in Antara that offers senior living.

Max India shares are being traded at ~81 and the intrinsic value of the healthcare business is estimated at ~60. However, with the deal being funded by Radiant, KKR will bring in more money in the venture and increasingly have a majority stake in the healthcare vehicle. Radiant has also been one of the players who bid for the troubled Fortis Healthcare, but the deal was won by IHH. It has also been in the running for the PrimeMed Super Specialty in Gurugram but lost out to Nayati Healthcare.

Sources close to Radiant say KKR’s strategy is based on the premise that there is going to be consolidation in the healthcare business, many of which were set up and run by doctors who do not have the capital to expand business and are looking for investors as well as professional management to join in. Also, the past three quarters have seen margins of most healthcare chains get squeezed due to regulatory pressures.