For Ameera Shah, landing majority ownership of Rs.600 crore Metropolis Healthcare Ltd that her father founded as a tiny clinic in South Mumbai’s Kemps Corner 34 years ago was a chance thing.
The seven-country, 130-lab diagnostics chain, which saw the entry and exit of several investors and protracted boardroom tensions, now has “a clean ownership and board structure”, says Shah, for whom such a structure is most critical to perform optimally.
“I am happy that today we are one such organization,” says Shah, managing director and CEO, Metropolis Healthcare.
It took a while to reach there.
When the Goldman Sachs Inc. alumna returned to India from New York in 2001 to work with her pathologist father at what was then called Sushil Shah’s Laboratory, it was a single-lab clinic, with an annual revenue of Rs.7 crore. The daughter, who had nil experience in the complex world of healthcare services, set to work, armed with ambition and perseverance.
Just a few months after Shah returned to India, G.S.K. Velu, a Chennai-based doctor and promoter of several medical services enterprises, joined in as financial investor as the lab was looking for partners to fund its expansion plans. In 2002, the Shah family and Velu held 50% stake each in the venture.
In the same year, Shah renamed the lab to Metropolis Healthcare, a name she says was suggested by her mother. What was till then a small proprietorship soon began taking the shape of a corporate entity.
In a 2014 report, rating firm Crisil Ltd estimated the size of India’s diagnostics industry at around Rs.37,700 crore in 2014-2015. It forecast the diagnostics industry to continue to grow at a compound annual growth rate of 16-17% over the next three years to over Rs.60,000 crore by 2017-18.
Metropolis, which sensed the growth potential of the sector, spotted new avenues for acquisition and expansion early on. It was the first healthcare business to adopt a successful hub-and-spoke model for expansion.
In 2003, Metropolis acquired and rebranded Sudharma Laboratory in the city of Thrissur, Kerala, as Sudharma Metropolis, starting a pattern it would repeat across the country and abroad. As of date, Metropolis has around 25 such partnerships.
“We expanded to Sri Lanka in 2006 when we learnt that samples were being sent to Singapore for testing. We found an opportunity and quickly capitalized on it. Nawaloka Metropolis is a reputed brand in Sri Lanka and has over 22 labs and 100 collection centres,’’ says Shah.
In 2006, Metropolis for the first time raised private equity (PE) capital to fuel its growth, with ICICI Ventures Ltd chipping in with Rs.35 crore. Velu, who was managing director then, said the firm planned to invest Rs.100 crore over the next two years to expand its global presence.
“The ICICI Venture funding was required as we needed funds for the proposed pan-India tie-ups. But it did more than just fund-raising, as the private equity firm brought in professionalism, accountability and accounting discipline to transform Metropolis from a sole proprietorship to professionally-run corporate house,” recalls Shah.
As Metropolis expanded across India and outside, PE firm Warburg Pincus Llc invested $85 million in the firm in 2010, buying out ICICI Venture and purchasing new shares. But when it was time for Warburg to cash out, problems cropped up.
When Warburg expressed its intention to exit, potential investors were sounded out, she says. It would have been just a case of one PE fund buying out another. She says Metropolis wanted to subsequently sell a larger stake to one investor and also increase the promoter family’s stake.
That was not meant to be.
Several news reports appeared in late 2014 that spoke of tensions between Velu and the Shah family. Shah says potential investors became wary of wading into a company facing boardroom battles.
“Those were difficult days when media celebrated that there was no great camaraderie among promoters. Metropolis was entangled in a position wherein a lack of aligned vision was hampering the company’s future and growth. It was a standstill for Metropolis in terms of growth, thanks to a lack of consensus,” says Shah, rather bluntly.
“Finally, owing to a media spark, PE firms pulled off the plug at the last minute. I decided to raise debt through multiple deals including KKR and give an exit to Warburg. With this acquisition, the Shah family became the majority stakeholder in Metropolis Healthcare,” she says.
So, instead of one PE buying out another, it was the founder family that finally bought out Warburg’s 27% stake for Rs.550 crore with the backing of KKR India, the local arm of global PE firm KKR & Co. LP. This raised the Shah family’s stake in the company to 63% from 36%.
“The shares have been acquired by me and my family, and we are very excited about the new phase of growth in Metropolis and the industry,” Shah said on 10 April 2015.
Velu was furious.
“As a co-founder and co-promoter, I was deeply hurt. This transaction was put through without my knowledge,” The Economic Times reported on 20 April, citing an email from Velu.
Velu claimed that he and the board were not informed of the Shah-Warburg deal.
According to Shah, Velu too had expressed his intent to exit, along with Warburg. However, in January 2015, Business Today had quoted Velu as saying that he had no plans to sell his stake in the company in the near future, “as the company is on a growth trajectory and my investments are safe”.
But he did not stick around much longer.
On 10 September, PE fund Carlyle Group acquired Velu’s stake, leading to his exit from Metropolis. Mint reported, citing two people in the know of the development, that the deal size could be Rs.850-900 crore. Avendus Capital and Veda Corporate Advisors were financial advisers for the deal.
When contacted, Velu said, “Whatever had to be told about Metropolis issue had already been told by me before my exit, and to be a constructive entrepreneur, I have already exited from Metropolis after being an integral part of its journey for many years. I don’t want to discuss on this issue any more, and as per the understanding reached between both promoters’ group, both of us are not supposed to make any press statements on this issue, beyond what was already said before my exit.”
The road ahead
Metropolis already has a presence in South Asia, West Asia and Africa. Its 25 global labs now contribute about 25% of its revenue. It has 130 labs and 1,000 collection centres with 3,800 employees, and a valuation of Rs.3,000 crore.
Shah has got the ownership structure she wanted. What next?
“The decision-making is going to be faster with a single majority investor along with a PE firm like Carlyle Group rather than multiple investors taking calls on expansion plans,” says Shah.
Shah is betting big on Africa, where she has worked for nearly three years to set up a base. “Africa is seen as a risky market, but today we are strategically expanding to more locations there,” she says.
The company is also looking at large and small acquisitions and may consider another round of funding to fuel expansion. It has decided to be very selective in choosing partners. The firm has made 20 smaller acquisitions since 2001.
According to Abhijit Joshi, founding partner of law firm Veritas Legal, who focuses on corporate restructuring and acquisitions, Shah is a highly motivated and driven person.
“She is a great combination of emotional and intelligence quotient and (it) is not surprising to see how she has successfully managed the recent mergers and acquisitions activities in her company,” he says.
Others are more circumspect.
According to a senior investment banker, a clutch of healthcare firms are raising money through initial public offers (IPOs), posing a challenge to companies such as Metropolis. He did not want to be identified.
The IPO of diagnostics firm Dr Lal PathLabs Ltd, which closed in December, was oversubscribed 33 times. On the first day of listing, the shares gained 50% over the issue price of Rs.550 per share. The firm raised Rs.632 crore through its IPO, while another healthcare firm, Alkem Laboratories Ltd, raised Rs.1,350 crore in December. Shares of healthcare firm Narayana Hrudayalaya Ltd rose almost 35% on its debut on 6 January after an IPO that was subscribed over eight times. More such firms, including oncology firm Healthcare Global Enterprises Ltd, hospital chain Aster DM Healthcare and diagnostics firm Thyrocare Technologies Ltd, are planning IPOs.
But Shah has no plans to go public for funds. “We have no plans for an IPO at this point of time. No definite plans as we are flushed with funds. There are no compulsions to create liquidity. We may look at another round of funding to fuel expansion, if required. At this point, my only goal is to make up for the precious time that we have lost and grow that much faster. There is no stopping us now,” Shah adds.