Why hospital firms trail pharma in foreign M&As

Dr Reddy’s acquires German player Betapharm. Lupin acquires South African firm PharmaDynamics. Piramal Healthcare acquires US-based Minrad, Sun Pharma acquires US-based Chattem Chemicals.

Think of Indian hospital groups making overseas buys, and the names will be few and far.

Apart from Fortis Healthcare, which along with a Mauritian partner, acquired stake in a Mauritian hospital, and Apollo Hospitals making inroads in Bangladesh and Mauritius through joint ventures, examples are hard to find.

Industry experts say it will be a few more years before overseas buys become the focal point for Indian hospital groups.

BS Ajaikumar, chairman and CEO of HealthCare Global (HCG) Enterprises — a chain of 18 cancer hospitals headquartered in Bangalore — said in the next five years, overseas acquisitions will gain credence.

Drugmakers tapped new geographies only after creating a robust presence within India.

“Corporatisation of healthcare is just a 20-25 year old
story. Till the time hospitals gain some maturity within India, overseas buys will not be popular,” said Vishal Bali, CEO of Fortis Hospitals.

V Krishnakumar, executive director, Avendus Capital, said the growth potential within India for hospitals is high.

Shiraz Bugwadia, director, o3 Capital Advisors, an investment banking and financial services firm, said the private sector, which already accounts for 65-70% of healthcare delivery space, is expected to cater to 80-90% of future bed requirements, which will provide more growth avenues.

“There is opportunity to consolidate the domestic market first, which will help players use capital more efficiently, de-risk their business model as they get access to an existing patient base, and get higher returns.”

There is no particular business reason for hospital chains
to go abroad for acquisitions, say experts.

Besides, unlike pharma, where companies can bring significant India advantages to bear in product development and manufacturing, healthcare is largely a localised business, with limited India advantages that can be brought to bear, said

Krishnakumar. “Also, the reimbursement and insurance-driven healthcare models in Western countries operate differently from the self-pay, doctor-centric models in India. Hence, there are limited strategic and operational synergies from overseas deals,” Krishnakumar added.

Moreover, globally too, healthcare is dominated by systems in the public space, providing less scope for buys, said Bali. “Overseas acquisitions by Indian players will first happen in the developing world and then opportunities will be scouted for in the developed world.”

Ajaikumar said HCG would look at buys in markets like Sri Lanka and Africa, for cancer-focused players.

At present, compared to outright buys, the joint venture route is seen as a better channel to gain access to advanced technologies, said Alistair Stranack, global healthcare head at advisory firm Parthenon Group.

“JVs also carry lower risk alternative to full acquisition, involve less capital, and help in a new territory where the local partner can provide knowledge and international partner the expertise,” Stranack added.