Q&A: Ranjan Pai, the billionaire entrepreneur who broke the jinx of buying a healthcare chain. What next - an IPO?

Dr Ranjan Pai turns 48 next week. He is the grandson of TMA Pai, the man behind the University Town of Manipal and is one of India Inc’s youngest billionaires. As a teenager, Pai could not make it to the family’s Kasturba Medical College, but the early setback spurred him to achieve bigger goals.

He spotted unicorn Byju’s back in 2013 and exited with ten-fold returns in 2016, managed to get the backing of global investment giants TPG and Temasek as well as Azim Premji’s investment fund Premji Invest and now controls the Manipal Group which has a presence in education, healthcare and stem cell research.

But there was one hurdle which Pai had not been able to cross. In the past, on two instances, he had come tantalisingly close to sealing the buyouts of  two domestic healthcare chains. He made multiple attempts to acquire Fortis Hospitals but lost out to Malaysian healthcare provider IHH after a bitter, prolonged bidding war. Then Pai entered advanced discussions with Delhi-based Medanta Medicity, but the deal talks fell apart.

He kept at it and didn’t give up and today, the disappointment of these failed attempts has been washed away as Manipal Hospitals announced a definitive agreement to acquire the Indian hospital assets of US-based Columbia Asia Hospitals. The deal size was undisclosed in the announcement, but sources indicate that it was struck at around Rs 2,100 crore.

Moneycontrol’s Ashwin Mohan caught up with Ranjan Pai for a chat on the rationale behind the Columbia Asia deal, what it means for the Manipal healthcare empire, M&A activity in the healthcare sector, listing plans, and much more.

Ranjan, you have always made your ambitions clear about having a larger  national footprint and have aggressively chased healthcare assets in the past. The high profile bidding war for Fortis Hospitals comes to mind and you have also been linked to talks with the likes of Medanta Medicity which unfortunately fell through. You must be delighted that you finally crossed the finishing line with Columbia Asia Hospitals?

Ranjan Pai: Yes Ashwin, we have looked at certain deals in the past and have been unsuccessful. M&A has to be carefully thought about and more importantly carefully integrated post the acquisition. To this end, we feel very confident about the Columbia Asia assets with their high quality infrastructure and excellent doctors, nurses and management staff, we believe it will be a good fit both culturally and geographically.

Could you give us a sense of the deal valuations... this deal has been in the making for a long time and word was that when the negotiations began last year, the valuation being looked at was 18 times FY20 EBITDA... but I am assuming since the outbreak of Covid-19, which badly dented the healthcare sector, valuations would have been reworked. Could you give us a ballpark estimate of the valuations?

Ranjan Pai : No comments on valuation.

TPG has backed Manipal Hospitals in its M&A bids in the past. What was their role this time, and how will you fund the deal?

Ranjan Pai : Both TPG And Temasek have been great partners for Manipal. They provide great insights and guidance. We are doing a rights issue to fund the deal and some debt.

The industry view was that since Columbia Asia has its main asset in Bangalore,  an acquiror with ready Bangalore presence and a Bangalore team would be best suited to absorb the portfolio and gain synergies. Do you think that was a key factor which worked in Manipal's favour for this deal?

Well yes and no. Any well run asset is a good fit for us. This acquisition helps us add to our Blore presence but more importantly gives us an entry to new markets that we don’t have a presence.

The combined entity will have 27 hospitals across 15 cities with 7,200 beds... do you have plans to further expand the bed count and geographic presence across India via the inorganic route?

No. We will focus growth only in India. The main focus now will be on integrating this asset well. Beyond this we will look at other assets only post successful integration.

Do you think COVID-19 has led to a situation wherein smaller healthcare chains or standalone speciality outfits which are strained for revenues could become M&A targets? Do you see further consolidation in the sector in the COVID-19 era?

I think to a certain extent yes and consolidation in general will happen. Given India’s size, we don’t have a large healthcare systems like in some of the other countries. We should have 4-5 large hospital chains with over 10 to 15 thousand beds over the next 5-7 years. This will happen through consolidation and some greenfield activity.

 Now that Manipal Hospitals backed by TPG and Temasek has achieved  greater size and scale post this deal, the markets expect a big bang initial public offering (IPO) from your end! Any listing timeliness that you can indicate?

I think we are big enough to have a listing even without Columbia Asia. And just because we did this is not the reason also for the IPO.  It will need to have lot of other reasons. But, in general yes, the next 2-3 years there should be a listing.