Aster DM Healthcare Ltd. and Quality Care India Ltd. which is backed by private equity majors Blackstone and TPG have announced to merge and the combined listed entity will be called Aster DM Quality Care Ltd. creating one of India’s top 3 hospital chains in terms of revenue and bed capacity. The merged entity will be jointly controlled by Aster promoters and Blackstone. It will have a of network of 38 hospitals and over 10,150 beds spread across 27 cities. In an interview with The Hindu, Alisha Moopen, Joint Managing Director, Aster DM provides more details. Edited excerpts:
What is the need for this merger?
Last year, we had done the segregation of the GCC business of Aster from the India business. The whole idea was to make sure that we are focusing entirely on India. And we wanted to build up the India business. And that was the strategy for the public listed entity. Now, there are a few ways we could do it.
We can either build it organically by adding beds, which we were doing anyways. But it would take us 15, 20 years to be one of the country’s top three.
We spoke about having a private equity sponsor to come and help accelerate and build a platform. But again, same thing. We also started exploring the option of having sponsor-backed platform where there is a sponsor, who has a platform which is complementary to Aster’s.
And this is not easy to find. And we started evaluating a few options. And when we came across Blackstone’s platform, which had Quality Care which is very similarly sized to Aster with close to 5,000 beds, sort of micro market leadership, tier two, tier three leadership.
We said this actually is a great complementary platform to ours. There is synergy, there is a compelling reason for us to combine forces and having a partner like Blackstone to come alongside with us who truly believe in healthcare.
We only do healthcare and this is all that we know and do it really well. We are very grateful for the way the Indian market has appreciated that. When you look at healthcare rankings, we are always in the top five. And the market has also appreciated the way we have performed as a segregated business. So combining these, we felt there is a lot of benefits.
We get scale. We will get the economies of scale. There are synergies at play. So definitely from a patient point of view, there is benefit from a medical community and a doctor franchise, there is a benefit. And then when we looked at it financially, from a commercial standpoint, also, we felt there are a lot of synergies that will unlock huge value and leverage for us.
So it was felt that it was compelling enough to go ahead and ink this merger and create, one of the largest healthcare transactions globally this year.
What will be the brand architecture of the combined entity post merger?
Aster operates entirely with the Aster network. With the Blackstone portfolio, they have got a few brands that have kind of consolidated. One is KimsHealth, which is largely in Kerala. You’ve got the CARE Hospital Platform, which started in Hyderabad. And there is the CARE Platform, which is there largely in Central India. And then there’s the Evercare Platform as well. So it’s three different brands. And then the Aster brand coming together.
What does this proposed merger mean for healthcare in India and for providing affordable healthcare because a lot of people are unable to access that?
For us, we believe this is the most compelling factor. As a platform, both the Aster and the Quality Care platform has got large presence in tier two and tier three cities. Like I said, it’s 27 micro market leadership.
We actually know how to do healthcare in the tier two tier three cities. We also have presence in the metros but mostly in Bengaluru and Hyderabad but a large part of our business on both platforms come from tier two tier three cities so we believe that with this 10, 150 beds with a pipeline of close to 4, 000 beds which will make close to 14 000 beds in the next two or three years, we will be one of the largest private players in India, where there is a thick exposure and where we have successfully done the model in tier two, tier three cities. And we should be able to scale up faster than any of our peers to be honest.
What is the swap ratio and the additional financial investment required to complete the project pipeline.
The valuation of the combined entity takes us to over $5 billion which ₹43,000 crore in enterprise valuation. The swap ratio is 57.3 percent to Aster shareholders and 42.7 percent to Blackstone and their shareholders. If you further drill down we will have 24% shareholding with my father Dr. Azad Moopen being the Executive Chairman on the board of the merged entity and Blackstone will have 30.7% shareholding.
So Aster as the public company is valued at, 36.6 multiple, which is at a 45% premium to what we are acquiring the Quality Care platform at which really shows the clinical leadership, the infrastructure and the great market performance that Aster has delivered over the last five years.
What will be the composition of the leadership team?
It is a combination of forces. We believe that this being one of the biggest platforms of India, we have got Dr Moopen leading as the Executive Chairman. And we have got Varun Khanna who is currently the CEO of Quality Care will be the MD and Group CEO of the merged entity and we have got Sunil Kumar who is the CFO of Aster, who’s been with us for the last decade, will be the CFO of the combined entity. So, there will be a very powerful combination of leaders from healthcare right from the promoter doctor to a professional management team that will take this to becoming India’s best healthcare institution, that’s our goal and our ambition.
What is the role you will be playing in the merged entity?
I am currently the Deputy Managing Director for the India business of Aster. I will be a director on the board in the merged entity. We believe the merger will take another 12 months and these 12 months are going to be crucial for us to create a strong implementation for the merged entity. An integration committee is being formed.
So myself and both my sister and my brother-in-law, who are directors on the Aster board have a goal to make sure the combination of this platform can be really integrated in a true manner so that we are able to leverage the benefits of the platform and create those synergies fast as fast as possible.
When do you think this third largest hospital in the making will be a pan India player?
We have big goals and we have to be very opportunistic on that. As opportunities come we will evaluate it diligently and we would like to make sure that we have acquisitions which are in line with our strategy and our ethos and values.
What is the learning from your father and how you want to take this organization forward?
Honestly for us, healthcare is a mission. It is about creating impact and building scale and this enables us to touch more people’s lives. So our goal is to become the finest healthcare institution in India. And we believe partners like Blackstone will help deliver that because they have deep expertise in life sciences and healthcare is changing so rapidly. We want to stay ahead of the curve. We want Indian healthcare to stay ahead of the curve. And we want to be that symbol for the best healthcare example in India. So that’s the goal.
And that is what my father has always inspired me and all of us at Aster to take this bold step and the courage to create this transformative merger.
