Professional Documents
Culture Documents
India's Economy and Its Reception of Private Equity Firms
India's Economy and Its Reception of Private Equity Firms
They
invested heavily in a variety of industries—notably information technologies (IT) and financial institutions—
the question, not unexpectedly, has arisen: What is the next target for private equity investors in India? The a
may well be India’s healthcare system, a sector under increasing scrutiny from savvy equity investors.
Expanding demand for quality healthcare services (a worldwide phenomenon), in conjunction with relax
government restrictions on infusions of offshore capital, make the sector an attractive environment for fore
investors. In addition, the major players within India’s healthcare industry—prominently, Fortis Healthcare
Wockchardt hospital chain, and Max Healthcare—are currently planning major growth
developments, including initial public offerings (IPOs). These activities point to the potential of the industr
terms of both growth and return on investment. Indeed, many private equity investors have already identifie
investment potential of the healthcare industry and have negotiated multi-million dollar deals. This infusio
private equity will drive future industrial expansion and strengthen the nation’s healthcare infrastructure. An
corollary, private equity investment in the sector will have the added benefit of supporting related industr
notably medical tourism and real estate.
The most significant advantage offered by India over China to private equity investment firms is its superior
pool. “India"s chief advantage over countries such as China is that it offers investors better trained manager
India’s professional population has extensive experience working in global markets and the nation’s emphasi
higher education has resulted in a large pool of management professionals.[8] In contrast, China suffers fro
significant shortage of labor talent, particularly in the field of middle management.[9] This often forces com
to recruit foreign professionals to fill key roles, a requirement that both increases cost and reduces efficiency
suffers from no such talent shortage, a situation largely attributable to the nation’s strong commitment to edu
In fact, India is one country where managerial professionals are often recruited to fill positions within China
China’s labor market also suffers from a very high rate of turnover (12%, which is more than double the av
rate among the world’s top business leaders).[11] Nearly two thirds of all Chinese professionals elect to pu
their careers in foreign nations, further exacerbating the nation’s skilled manager shortage.[12] This shortfa
qualified talent is a significant barrier to sustained economic growth in the Chinese domestic market and,
consequence, constitutes an ongoing deterrent to private equity investment.
Private equity investment in India intensified in 2007. In the year’s second quarter, private equity firms inje
approximately US$3.2 billion into India’s economy.[17] This figure represented a substantial increase in pr
equity firm investment over that of the previous quarter, a period during which such investment amounted
estimated $760 million.[18] “The drivers of private equity investment in the India market include: consolida
fragmented industries, international expansion, increasing domestic market spending, and continued growt
value-added services.”[19]
Private equity activities are diversified within India. Private equity investment was spread across several ind
to 76 different Indian companies.[20] The two most heavily invested industries were the information techno
and IT-enabled services industry and the banking and financial services industry. Other significant investm
targets were the healthcare, construction and engineering, logistics, and shipping industries.[21]
India’s government appears to recognize the need for additional investment in the nation’s healthcare syst
While some lingering regulations deny foreign investment opportunities in some of the nation’s industrial se
there are no limitations on foreign involvement in Indian healthcare. This absence of regulation limits th
uncertainty in the investment that might otherwise be created by intrusive government involvement.
Improving economic conditions contribute to longer life spans. As a consequence, longer-lived individuals
pose demands for increased aggregate healthcare services over a longer period of time. They will also requ
new set of geriatric care, driving the development of this particular segment of the industry.
The inability of the public healthcare system to meet the needs of the population has driven development o
private healthcare provider sector. Private healthcare providers have fared remarkably well within the econ
They enjoy the advantage of planning their locations and specialties to fit the needs of the local inhabitants
addition, they have the advantage of hindsight, to wit, observing provider errors made in the public healthc
sector and avoiding such pitfalls. The next section focuses upon the activities of several of the nation’s b
performing private healthcare providers and their growth plans within the context of acquiring additional pr
equity.
Major players in India’s healthcare industry
India’s healthcare industry includes several growing private healthcare providers. Many of these firms choo
specialize, electing to focus upon a particular geographic region or a particular healthcare need. Most priv
healthcare providers concentrate in the nation’s urban areas. As a consequence, there is ample room fo
development in India’s largely underserved rural areas. (This section discusses three of the most influential
in India’s healthcare industry. Each of these corporations is developing major future growth strategies and
already received substantial private equity interest.)
Max Healthcare
Max Healthcare is a major private healthcare provider, one that provides modern services to citizens across
country. Max Healthcare has developed a successful financial model, one providing high quality, low cost h
care in urban areas (e.g., downtown Delhi). Patients needing medical attention can visit a Max Healthcare ho
without an appointment and with the expectation of seeing a doctor within an hour. Routine visits at such cl
cost $5.50, well below the average cost of medical visits in more developed nations.[27] Max Healthcare
negotiated some of the industry’s largest recent private equity agreements. For example, in 2004, Max Healt
was the recipient of $10 million from Chrys Capital, a United States-based private equity firm.[28]
To date, Max Healthcare has received more than $30 million from Warburg Pincus. (Warburg Pincus is Ind
single largest domestic private equity investor.[29]) Examination of its most recent activity underlines wha
likely the soundest investment equity opportunities in India. Warburg Pincus has been active in supporting I
healthcare system.[30] Several private investment groups, including George Soros’ Quantum Fund, hav
recognized the strong potential within India’s healthcare system and are negotiating similar agreements w
private healthcare providers.[31]
Fortis Healthcare
Fortis Healthcare is another example of a private Indian healthcare service attracting interest from private e
investors. With 16 cardiac units and a dozen hospitals, Fortis Healthcare is a major private provider of healt
services in India.[32] Fortis was founded by a former pharmaceutical industry executive and is currentl
completing plans for an IPO. Fortis Healthcare has been pursuing its external growth strategy through a
aggressive program of new hospital facilities acquisition. For example, in 2005 Fortis Healthcare acquired E
a regional hospital chain focusing upon cardiac care. This acquisition cost Fortis $127 million.[33] Media re
have highlighted Fortis as actively pursuing additional private equity deals to fund its future growth plans. F
Healthcare has major plans for expansion, including the construction of several new hospitals. This new
construction will be further augmented by the acquisition of several existing hospitals.
Thus far, Fortis has enjoyed considerable success in courting private equity funding. In preparation for execu
its corporate growth plan, Fortis Healthcare recently brokered a deal with two private investors, the Quantum
of George Soros and Blue Ridge, an investment firm. In the last year, Fortis issued shares to these two fun
totaling in value US$33.3 million.[34] Trikona Capital is likely to announce a substantial investment in For
the near future.[35]
Conclusion
Private equity firms in India have preferred to invest in established, fragmented industries by supporting the g
of exceptional companies. In 2007, the most popular areas for investment by foreign private equity firms we
information technology (IT) and finance industries. Private equity firms should reexamine India’s healthc
industry. India’s healthcare system provides an optimal environment for private equity investment. The heal
industry is poised for future growth as demand increases, consonant with the continuing increase of the mi
class’ overall prosperity. The activities of particular industry leaders, notably Wockchardt hospital chain, F
Medical, and Max Healthcare, include active pursuit of growth strategies and preparations for IPOs. Each of
organizations offers an exceptional level of service and value.
The advantages garnered through private equity in the healthcare industry promise
significant returns for investors. Private equity investment into India’s healthcare industry
will support not only the expansion of the country’s healthcare system to local
patients, but also bolster the nation’s growing medical tourism industry. Indeed,
the relationship may be self-reinforcing: expansion of one will likely spur
concomitant growth in the other. Additional industries, including India’s real
estate market,
will also benefit from investment in this sector. India’s healthcare system is a sound
investment target for private equity firms and likewise may become a
paramount factor in private equity investment in India for years to come.