KKR Set to Acquire HCG in Deal with CVC Capital

The deal, expected to be finalized in the coming weeks, follows KKR’s return to the Indian hospital sector after a two-year absence. Both parties aim to sign binding documents by early January 2025.

KKR is nearing an agreement to acquire Healthcare Global Enterprises Ltd (HCG), India’s largest specialty cancer care hospital chain, from private equity firm CVC Capital Partners.

The deal, expected to be finalized in the coming weeks, follows KKR’s return to the Indian hospital sector after a two-year absence. Both parties aim to sign binding documents by early January 2025.

HCG’s founding family, led by oncologist Dr BS Ajaikumar, holds a 10.87% stake in the company, which was founded in Bengaluru in 2005.

The company went public in 2016 and operates across 19 cities in India with over 2,200 beds. CVC and the founding family together hold a 71.23% stake in the company.

Once the deal is completed, KKR’s proposed acquisition involves launching an open offer for an additional 26% of HCG. While Dr Ajaikumar is expected to remain as chairman, he may transition to a non-executive role, as KKR aims to gain control of the hospital chain.

Sources close to the matter say that if KKR crosses the 75% threshold after the open offer, the founding family might reduce its stake, leaving KKR as the sole promoter. In such a case, a potential delisting of HCG could follow if the open offer is fully subscribed and KKR’s shareholding surpasses 90%.

KKR’s Strategic Investment

KKR’s offer of a INR 425-450 per share, which was finalized in late October, trumps a rival bid from Bain Capital, with terms favorable to key shareholders.

However, the offer hinges on KKR gaining control of HCG. In 2020, CVC acquired a controlling stake in HCG for INR 1,049 Cr. Today, CVC’s stake is valued at INR 4,663 Cr, marking a significant increase in its value.

Analysts have noted that the potential change in HCG’s management structure, particularly Ajaikumar’s role, could trigger a significant rerating of the company. HCG’s stock currently trades at 15 times FY26 EBITDA, one of the lowest in the sector, and analysts predict that KKR’s involvement could boost its valuation.

The potential shift in Ajaikumar’s role has been a point of contention in the negotiations. He is reportedly keen to remain in a leadership position, despite the proposed move to a non-executive role.

"Talks are still in the works," Ajaikumar said. “I made it clear, I am not selling.”

HCG has focused on accelerating its growth in recent years, making several strategic acquisitions to expand its footprint.

In October, it acquired a 51% stake in Visakhapatnam’s Mahatma Gandhi Cancer Hospital & Research Institute for INR 414 Cr. HCG’s expansion efforts are expected to continue, with plans to add 900 incremental beds over the next four to five years.

With the company already outpacing industry growth—its revenues increasing at a CAGR of 17%—HCG is well-positioned to capitalize on emerging opportunities in the cancer care sector.

"With most emerging centres now matured contributing above 20% margins and operating leverage improving, HCG is well-positioned for further margin enhancement," said Ankush Mohan, healthcare analyst at Axis Securities.

In addition to organic growth, HCG’s digital strategy, launched two years ago, has expanded its patient base, with digital channel revenue accounting for 14% of total revenue in the September quarter, up from just 4% a year ago.

This move has strengthened the company’s position as it looks to expand its reach in India’s growing healthcare market.

KKR’s plans for HCG post-acquisition are likely to include primary capital investments aimed at financing further expansion in non-metro hospitals and supporting additional acquisitions.

KKR’s recent involvement in the hospital sector includes the acquisition of a 70% stake in Baby Memorial Hospital in Kerala for INR 2,500 Cr.

Consolidation in the Hospital Sector

KKR’s potential acquisition of HCG is part of a broader trend of private equity-led consolidation in India’s healthcare sector. The country’s healthcare industry, especially cancer care, is growing rapidly, driven by increasing demand for specialized services.

KKR’s previous investments, including the $2 billion exit from Max Healthcare in 2022, reflect the firm’s strong interest in India’s healthcare sector.

With analysts predicting significant growth and margin enhancement for HCG, KKR’s potential takeover could be a key moment for the company’s long-term strategy. The transaction, if completed as planned, is expected to strengthen KKR’s position in the Indian hospital space, where the firm continues to seek further opportunities for expansion and investment.