Deal or no deal? That’s the Rs 617-crore ($83 million) question Mumbai-based diagnostics major Metropolis Healthcare has been asking Chennai-based Dr Ganesan’s Hitech Diagnostic Centre for many months now. The listed Metropolis has been gunning to buy 100% stake in the unlisted Hitech in a cash-plus-stock deal—Rs 511 crore ($69 million) in cash and Rs 106 crore ($14 million) worth of Metropolis’ shares—since January.

Metropolis says it has been trying to conclude the transaction since April. Even the statutory approvals for the deal have lapsed lapsed BSE Disclosure Read more  and will have to be re-obtained. But Hitech seems to be ghosting the company. 

As on 10 July, a peeved Metropolis has all but given up. It told the stock exchanges that “in the view of no communication from the sellers to the letter issued on 5th July 2021, it can be assumed that the sellers are not intending to close the transaction.” Metropolis had been counting on the Hitech acquisition to bolster its position in South India. Primarily in Chennai, where Metropolis holds pole position, and getting its No. 2 Hitech would be a huge advantage. Hitech is also present in Karnataka, Kerala, Andhra Pradesh, and Pondicherry. 

With the Covid disruption, the diagnostics sector is seeing a consolidation race. Bigger players such as Metropolis and Dr Lal PathLabs are seeking to grow by acquiring smaller players such as Hitech and Suburban Diagnostics that want to cash out. The deal would have given Metropolis a head-start. For Hitech’s promoters, it would have given the exit they have been seeking for the past few years. 

So what went wrong between January and July? Metropolis and Hitech are tight-lipped about this. But the proximate reason seems to be another deal—the blockbuster PharmEasy-Thyrocare transaction  last month. 

Deep-pocketed healthcare startup PharmEasy paid Rs 4,546 crore ($612 million) to acquire 66.1% stake in Mumbai-based Thyrocare from Dr Arokiaswamy Velumani, the company’s promoter. Also, Velumani invested Rs 1,500 crore ($202 million) to buy 5% stake in PharmEasy. 

Velumani got top dollar. And so did IPO-bound PharmEasy—Velumani’s investment attested the sharp jump in PharmEasy’s valuation from $1.8 billion in its previous funding round to $4 billion. “A mutual admiration club, as it were,” says a healthcare analyst who does not want to be named, as they are not authorised to speak with the media.

While a win-win for Thyrocare-PharmEasy, this deal could be a losing proposition for diagnostic companies looking to acquire. Small businesses seeking to sell out now have a new valuation benchmark thanks to Thyrocare.