Fortis Healthcare buys TPG stake in Parkway

India-based hospital chain Fortis Healthcare is buying a 23.9% stake in Singapore-based Parkway Holdings from private equity firm TPG Capital for S$959 million ($686 million).

Fortis is paying around S$3.56 per share, which equals a premium of about 14% to yesterday's closing price. The acquisition, which represents TPG's entire stake in Parkway, makes Fortis the largest shareholder in the Singapore-listed company. Other shareholders include Malaysian sovereign wealth fund Khazanah Nasional, which owns a 23.32% stake, The Bank of New York Mellon Corporation with 5.99%, Newton Investment Management with 5.99% and Franklin Resources with 5.98%.

Fortis has been adopting a strategy of both organic growth and growth through opportunistic acquisitions. It set up its first hospital in 2001. Then in 2005 it acquired the Escorts Heart and Research Institute from the Delhi-based Escorts group and in 2007 it bought the Chennai-based 180-bed multi-specialty Malar Hospital, giving it a foothold in South India.

But it was after the Singh family, founders of Fortis, sold a controlling interest in its pharmaceuticals business Ranbaxy Laboratories to Japan's Daiichi Sankyo in 2008 that the emphasis on the hospitals business really increased. The Singh family received around Rs96 billion for its stake in Ranbaxy and have been using the money to grow various businesses, including hospitals. Last year, Fortis bought 10 hospitals from Wockhardt for Rs9.1 billion ($199 million), which enabled it to achieve a pan-India presence.

However, the scale of the Parkway deal is completely different from anything Fortis has done in the past. The market capitalisation of Fortis is around $1.2 billion, so the outlay for the Parkway acquisition is about half its market capitalisation. Fortis has already got board approval for a $250 million equity capital raising. However, it is likely it will also raise some bridge financing, as well as some debt. 

Parkway, which has a total of 3,400 beds, reported revenues for fiscal 2009 of S$979 million and a profit of S$118 million. The company runs three hospitals in Singapore and 11 hospitals in Malaysia. It also owns one hospital in Brunei and one in India, the Apollo Gleneagles Hospital in Kolkata. In addition, Parkway has medical centres in China, provides healthcare education and laboratory services, and manages real estate.

TPG was not actively seeking an exit from Parkway, said a specialist, but the overture from Fortis was something it could not ignore. For its part, Fortis intends to play an active role in the management of Parkway. Malvinder Mohan Singh will be appointed chairman of Parkway and Fortis will also nominate another four directors to Parkway's board.

Royal Bank of Scotland and Goldman Sachs advised TPG, while Fortis was advised by Religare. 

The deal is the largest cross-border investment by an Indian firm in a healthcare company ever and the largest M&A deal in the healthcare sector in Singapore on record.