By AltG Research On Behalf Of Taponeel Mukherjee And Poornima Vardhan
The recent multi-billion dollar healthcare deals: Temasek-Manipal ($2 Billion), Advent International - Suven Pharma ($770 Million), and KKR-Max (5x Return In 4 Years) hospitals have established that Roll-Ups are the optimal strategy for India's healthcare space to create market-beating returns for investors.
What Is The Roll-Up Strategy For Generating Investment Returns?
Success in the Roll-Up strategy in India will require a unique approach, AltG's Investor Operator Approach, that combines an investor's financial engineering with an operator's business acumen. An India-centric approach is critical for global investors looking to win big in India.
The real opportunity lies in creating platform structures. However, Roll-Ups are not a one-size-fits-all approach - With Asset selection being the single most crucial factor for success. AltG’s APEX formula helps identify the right assets with speed and precision, thus, giving our clients a systemic advantage in the Indian Investment Landscape.
Please click here for more information about our Structured Solutions Report for Hospital Roll-Up Assets.
The success of the larger deals sets the stage for other small, medium and large Hospital Roll-Up platforms in India via providing a liquid secondary market, bumper investment returns and clarity on valuations.
What Is The Next Big Opportunity That Will Create Massive Returns?
The next big investment opportunity in healthcare is single-speciality hospitals and specialty clinics (such as nephrology, dermatology, oncology, eye-care, and IVF.) owing to the growing need for distributed healthcare that can cost-effectively reach the consumer while yielding profits.
High-quality smaller assets that trade at a 30-40% multiple discount to the larger assets set the platforms up for potentially attractive investment exits simply through Multiple Arbitrages.
Hospitals with revenues starting from USD 10 Million with EBITDA Margins north of 15% are available across the spectrum in India. The key is having a strategy around the platform aggregating a single specialty of hospitals, such as eye care, spinal care, maternity care etc. or a regional focus to generate value.
Investors with a broad spectrum of balance sheets can tap into the platform opportunity. Whether the investor is willing to commit an equity capital of $ 50 Million to a platform or is looking at the mega deals, value creation opportunities abound in the hospital market in India, where demand far outstrips supply.
How Do Roll-Up Platforms Create Value In India?
Hospital Roll-Up plays in India will create value through four levers:
Growth Arbitrage - The hospital platforms will continue to grow via both organic and inorganic growth. Organic growth is driven by high Free-Cash Flow generating greenfield projects that meet a minimum threshold of generating 10-12% on the CAPEX and driving capacity utilization higher.
Inorganic growth is via acquiring smaller hospitals onto the platform at a lower EV/EBITDA than the platform. Such acquisitions allow smaller hospitals to have a better revenue and Free Cash Flow generation strategy.
2. Multiple Arbitrage - The earnings of a larger platform will be of a higher quality and attract a larger multiple than that of smaller hospitals individually. The stability, high corporate governance standards and marquee brands associated with larger platforms allow for a higher multiple to be assigned to the earnings from such platforms, thereby creating value for all shareholders.
3. Cost Arbitrage by Cost Cutting through driving Supply Chain efficiencies: Combining various functions to drive scale. Savings in material Cost through renegotiation of supplier contracts and corporate overheads (Head Office cost optimization) and shutdown of unviable units.
4. Capital Structure Arbitrage - The larger platform can reduce its Cost of capital, thereby generating value for all the constituent hospitals on the platform.
What Is The Growth Potential For Private Hospitals In India?
Indian Private equity Roll-Ups such as KKR's Max Healthcare and Advent's purchase of Suven Pharmaceuticals is the beginning.
As the healthcare and pharma sectors continue to grow in India, Roll-Up platforms are the next investment opportunity in India's hospital sector that will generate Billions Of Dollars of returns for investors in the next 10 years.
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