9/27/2017 General Atlantic, Bain in talks to buy MedPlus pharmacy chain - Livemint

General Atlantic, Bain in

talks to buy MedPlus
pharmacy chain
Mumbai: MedPlus Health Services Pvt. Ltd, the second-largest
pharmacy retail chain in India, has restarted talks for a possible
sell-off, after a break of almost one year, two people familiar with
the development said.

This time, private equity investors General Atlantic and Bain

Capital are in discussions to acquire the business, one of them said,
asking not to be identified.

Three PE investors together hold 69% stake in MedPlus while Dr

Madhukar Gangadi, founder and chief executive officer, MedPlus,
holds the rest.

The existing investors, US-based Mount Kelle Capital

Management LP, TVS Capital Funds Ltd and Ajay Piramal’s India
Venture Advisors Pvt. Ltd, put their stake on the block sometime
back.

MedPlus is looking at a valuation of Rs.2,500 crore. Investment

bank Credit Suisse is advising it on the sale process.

Due to a valuation mismatch and concerns over foreign direct

investment in retail, the discussions between potential buyers and
existing investors failed last year, said the second person
mentioned above asking not to be identified.

Investment bank O3 Capital Advisors was running the sell

mandate last year.

Organized pharmacy retail falls under the category of multi-brand

retail. A foreign investors can buy only a 51% stake in an Indian

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9/27/2017 General Atlantic, Bain in talks to buy MedPlus pharmacy chain - Livemint

multi-brand retail company post regulatory approval, with a

minimum investment of $100 million, a 50% investment in back-
end infrastructure, and a 30% mandatory procurement of products
from small industries. Also, retail sales outlets can be set up only in
cities with a population of over a million and only in those states
that allow foreign investment in multi-brand retail.

MedPlus has 1,244 stores in 12 states and is expected to end the

year with sales of Rs.1,400 crore.

Dr Gangadi, a medical doctor with an MBA from the University of

Pennsylvania’s The Wharton School, set up his first medical store in
Hyderabad in 2006.

Of the 69% stake held by three PE investors, Mount Kelle holds

49% through its arm MKCP Direct Investments (Mauritius) IV Ltd,
TVS Capital’s TVS Shriram Growth Fund I holds 10.59% and
Piramal-led India Venture Trust Fund-I holds 9.09%, according to a
company balance sheet.

Emails sent to Gangadi, spokespersons at Mount Kelle , India

Venture Advisors and Bain Capital did not elicit any response. A
spokesperson at General Atlantic declined to comment.

“There is an interest for new investors to grow the business, as well

as allow a few older investors to exit. We believe Madhukar
Gangadi will steer the course to newer shores once additional
growth and other funding is completed,” said Gopal Srinivasan,
chairman and MD, TVS Capital Funds.

While there is widespread interest, it is too early to gauge the final

front-runners and it would be against the non-disclosure and
confidentiality agreements, he added.

Still, some of the concerns that delayed the deal remain unresolved,
said an investment banker who asked not to be identified.

“Globally, pharmacy chains tend to trade in lower multiples of

sales and operate on very thin margins. Thus seeking a premium
for the asset will become difficult. In India, foreign investors cannot
acquire a majority stake due to foreign direct investment
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9/27/2017 General Atlantic, Bain in talks to buy MedPlus pharmacy chain - Livemint

regulations in the sector. So funds would also not be keen to pay a

significant valuation premium for the asset as when the time comes
for them to exit, it will be a complex structured sale.”

The Indian pharmaceutical market is worth Rs.90,000 crore and is

mainly served through 800,000 retail stores. Of them, about 700,000
work under the apex body, the All India Organisation of Chemists
and Druggists.

Among private retail chains, Apollo Pharmacy, the pharmacy chain

run by Apollo Hospitals Enterprise Ltd, is the largest, with a pan-
India network of over 2,000 stores. Last September, Apollo
Pharmacy expanded its footprint by acquiring the pharmacy
business of Hyderabad-based Hetero Med Solutions Ltd for Rs.146
crore. Hetero’s pharmacy business included 320 outlets in Tamil
Nadu, Telangana and Andhra Pradesh.

In March, Mint reported MedPlus’s plans to open 10,000 stores over

the next three to four years. “MedPlus has so far invested around
Rs.170-180 crore and will need another Rs.2,000-2,200 crore to reach
10,000 stores,” Gangadi said.

Besides the pharmacy chain, MedPlus runs businesses such as

MedPlus Pathlabs, RiteCure (a distributor of medical and surgical
supplies to hospitals) and MedPlusMart.com (an online medical
store).

First Published: Fri, Oct 16 2015. 01 08 AM IST

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