High PE-VC exits not a healthy sign; Govt should stem the rot

In a growth that does not augur well for the healthcare and related sectors in the country, exits of Private Equity-Venture Capital (PE-VC) investors from these sectors have seen a growth of 40 per cent in terms of exit value in the financial year 2022-23, as compared to the previous fiscal year. The growth in PE-VC investors exit was the highest in the hospitals and clinics sector.

As per data from Venture Intelligence, a research service company, PE-VC investors made exits in healthcare and related sectors in a total of 31 deals during the financial year 2022-23, for a total of $4.19 billion, as compared to 37 deals for $2.99 billion in the previous fiscal. The deal amount from such exits during the fiscal is the highest in the last five years, which is notable since financial year 2022 itself has seen a significant growth in PE/VC exits compared to the $1.01 billion in 21 deal exits reported during fiscal 2021.

Data shows that the hospitals and clinics sector has registered a growth of close to 50 per cent in terms of exit returns, at $2.51 billion in 17 deals as compared to $1.68 billion in 12 deals, owing to the exit of international PE major Kohlberg Kravis Roberts & Co LP (KKR) from Max Healthcare Institute, among other deals. KKR sold its stake in Max Healthcare Institute for an amount of $1.18 billion last August.

Likewise, the business-to-business software segment has also seen a jump in PE-VC exits during the financial year 2023, at $974 million in two deals as compared to $76 million in two deals in the previous year. The high value exit was backed by the $960 million exit of Baring Asia from health information technology company CitiusTech in September, 2022.

According to data with Venture Intelligence, the medical technology sector in the country has reported four exits worth $88 million, as compared to one deal worth $9 million in the previous year.

In the online pharmacy segment, there was one exit worth $70 million as compared to three exits in financial year 2022, which has seen a total return of $352 million. The nutraceuticals segment has seen two exits with a total return of $36 million during the fiscal year. However, the PE-VC exits in pharma and active pharmaceutical ingredients (API) sector was the silver lining as the sector has seen a decline, both in number of exits and in terms of total exit value.

Pharma and API segment has seen three exits worth a total of $486 million during the fiscal year, as compared to 13 exits worth $ 642 million in the previous year. The exit of Singapore-based state-owned investor Temasek from Intas Pharmaceuticals for $261 million in April, 2022 was one of the major deals in the segment during the period. The shares of Intas Pharmaceuticals were picked up by Abu Dhabi Investment Authority (ADIA), a sovereign wealth fund owned by the Emirate of Abu Dhabi. Temasek also has seen the second highest return multiple of the fiscal year in the healthcare and related sectors, at 7.54x, from the investment.

The trend of growing PE/VC investor exits from the healthcare and related sector in the country was actually visible during the calendar year 2022 itself. It saw 26 exit deals for a total value of $4.30 billion, as compared to 37 deals for a total of $2.76 billion in the year 2021. The exit value is the highest in five years, as the total exits in terms of value during 2018 was $1.39 billion, 2019 at $1.84 billion and 2020 at $856 million.

Hospitals and clinics sector has reported exit values more than double of what it was in the previous year. The sector registered 17 exits for an amount of $2.73 billion in 2022 as compared to 11 deals worth $1.17 billion in the previous year. Business to business software industry has seen two deals worth $974 million in 2022, as against two deals with a total value of $76 million in the year 2021.

Hospitals and clinics sector has seen three of the top five deals in terms of return multiples, of which two were British International Investment, UK government’s development finance institution, selling stakes in Rainbow Hospitals, which is into paediatric and maternity care. The investor made a partial exit in May, 2022 for $104 million from the hospital, followed by a full exit for $132 million in December. Another exit was of Kedaara Capital from Telangana-based Vijaya Diagnostic Centre for $57 million in March, 2022, registering a return multiple of 5.08x. The two other deals in the top five exit deals during the year was in pharma and API sector, led by Singapore-based investor Temasek Holding’s exit from Intas Pharmaceuticals, selling stakes to Abu Dhabi Investment Authority (ADIA), for $261 million in April, 2022, for a return multiple of 7.54x. The other deal in the pharma and API sector, which is in the top five list, is the exit of venture capital major Sequoia Capital India and India-focused private equity firm ChrysCapital from Curatio Healthcare for $140 million in September 2022. The return multiple for Sequoia Capital was 6.50x and for ChrysCapital was 4x, in the deal in which Torrent Pharmaceutical acquired shares in the Chennai-based dermatology player.

The top five exits in healthcare and related sectors in terms of value include private equity firm KKR exiting from Max Healthcare Institute in August, 2022 for $1.18 billion, Asian private equity firm Baring Asia exiting from Citius Tech in the business to business software segment, selling stakes to Bain Capital and TPG Growth for $960 million in September, 2022 and KKR’s an earlier sale of stake in Max Healthcare Institute in March, 2022 for $434 million.

The growing trend in PE-VC exits is not a healthy sign for healthcare and related sectors. Both the industry and the government should take note and take measures to reverse the trend.

(The author is freelance

journalist with varied experience in different fields)