Hospitals everywhere are bulking up. The mega-merger of Manipal Health Enterprises (MHE) and Fortis Healthcare, announced last week, has created the largest hospital chain in India. The dealmakers are happy; shareholders and patients will come next.

At a town hall on Wednesday evening, the Fortis Healthcare management played up the external circumstances—problems at group financial services company Religare Enterprises, and demonetisation—for pushing the hospital business up against the wall. Downplayed was the promoters’ Fortis assets mismanagement and its role in the sell-out.

The sale will continue to dominate the news cycle as shareholders seek more transparency, even vent their unhappiness at the valuation. Whether IHH Healthcare Bhd, the interested Malaysian healthcare conglomerate, will swoop in to placate the shareholders, is an unfolding story. What is certainly an upside, though, say many hospital owners in the country, is that Fortis’ management will now no longer be in old hands. The governance had diminished to the level where one of its leading hospitals, in Mohali, Punjab, was recently knocked off the empanelment of the Ex-Servicemen Contributory Health Scheme, throwing the occupancy at the city’s largest hospital to its nadir.

No small irony for a hospital group that is often lauded for having the best standard operating procedures (SOPs) in the industry.

The combined entity, whether under one or two brands, with 41 hospitals in more than 10 states, has an enviable opportunity to build an efficient juggernaut, cut shared costs, and pass on the benefits to customers. It needs leadership. Who brings that to the table, investor TPG or the Manipal Group, remains to be seen. There is no precedent, unlike, say, the technology sector in India.

For now, entrepreneurs are relieved because the deal lifts the investment gloom that had begun to pervade the industry, especially in the light of multiple fraud investigations at Fortis and regulatory blows from New Delhi. “We are happy that one more hospital industry benchmark is being created because so far, it was only Apollo [Hospitals]. For everything, from valuations to profitability, the investors we engage with cite the Apollo example,” says the founder of a hospital chain which has raised over $100 million in venture capital.

Nonetheless, do not mistake this as a merger to end all miseries (for Fortis, MHE and industry sentiments). If the deal isn’t executed with transparency and if resources are frittered away, it could unleash bigger challenges on the sector.

Investors on the prowl

American alternative asset firm, TPG has been kicking the tyres for a while. In a conversation with The Ken in late 2016, a senior TPG executive noted that the Fortis buyout was a straightforward deal. One where it found enough headroom for its capital growth—Fortis share was trading at Rs 180, much below Apollo’s at Rs 1179, which itself was Rs 300 lower than its previous year’s share price.


Seema Singh

Seema has over two decades of experience in journalism. Before starting The Ken, Seema wrote “Myth Breaker: Kiran Mazumdar-Shaw and the Story of Indian Biotech”, published by HarperCollins in May 2016. Prior to that, she was a senior editor and bureau chief for Bangalore with Forbes India, and before that she wrote for Mint. Seema has written for numerous international publications like IEEE-Spectrum, New Scientist, Cell and Newsweek. Seema is a Knight Science Journalism Fellow from the Massachusetts Institute of Technology and a MacArthur Foundation Research Grantee.

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