India Awards: Exit of the Year – Apollo Hospitals

There were three-four hospital businesses that were roughly the same size - Apollo, Fortis Healthcare, Wockhardt and Manipal Hospitals, of which only Apollo was listed.

But demand in the Indian healthcare sector was, and remains, far greater than supply. Apax's investment made a 2.5x capital return and a 20% IRR when exited around five years later.

The first tranche of capital in 2007 was a primary investment of $104 million which represented at the time roughly 11% of the company. Apax ended up with an economic stake of approximately 19%, with about $170 million invested. Singh admits the GP paid a premium to the stock market price at the time but it saw enough levers of value creation to justify it.

For its part, Apollo needed fresh capital to support growth but it was looking for more than just a financial investment. "Healthcare is a capital intensive business and needs patient long term capital," says Krishnan Akhileswaran, the firm's CFO.

Apax offered experience and expertise in the sector. The GP was the largest owner of hospitals outside of North America - it had joint control of the largest private hospital chain in the UK, called GHG (General Healthcare group) and Capio, the largest operator of private hospitals in continental Europe, in its portfolio.

Apax benchmarked Apollo against performance in these European investments and introduced hospital operating efficiency experts it worked with globally. They brought in management dashboards and KPI metrics that Apax used in hospitals around the world.

The GP also helped with a retail pharmacy division which was losing money in a significant way, bringing in retail-focused colleagues from the investment and operating team to change the focus from a rapid roll-out to profitable growth. Stores in unprofitable locations were shut, and the store format and product mix changed.

Apollo is now one of India's largest healthcare chains, with over 8,500 beds across 50 hospitals. It has facilities across 15 cities in India. Over the course of Apax's investment period, net income had risen from INR1.18 billion ($19.2 million) to INR3.04 billion. Market cap had grown from INR30 billion to INR130 billion.

"The Apollo Hospitals investment was the perfect example of a true partnership between a founder promoter family successfully running their company and a PE investor," Singh says.

Apax helped the company grow and when it came time for the GP's exit, the promoters were able to assist with roadshows to generate interest from quality long term public market funds.

The first exit tranche was in November 2012 via an underwritten deal for around $130 million, at about a 6% trading discount. "The purpose of the first tranches was to get the news into the market that there was enough supply of paper coming out here and Apax was effectively a seller," Singh explains.

The rest was sold in block trades of $50-100 million to various funds in response to reverse inquiries, with a final exit coming in May 2013.

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• Topics
• Exits
• South Asia
• Healthcare
• Apax Partners
• India
• healthcare
• AVCJ Awards