By selling global assets, Fortis is cutting losses but does that justify the method in its acquisition madness?
It was fast and furious. Fortis was on steroids; it made eight acquisitions in six countries in 15 months. The Singh brothers, Malvinder and Shivinder, promoters of Fortis Healthcare, were epitomising what some management mavens would call a shoot-first-and-then-ask-questions strategy. But in less than 24 months, it’s all unwinding: Two of the three biggest global assets are sold and the third, Quality Healthcare in Hong Kong, which was the first international buy for Fortis International when it was floated in October 2010, is up for sale too. When that happens in the near future, Fortis, for all practical purposes, will be back to being an Indian company.
“At every transformational step we have taken, we have been asked why,” said Malvinder Singh in a Forbes India interview in March 2012 . “When we exited Ranbaxy [sold to Japan’s Daiichi Sankyo for $2 billion], bought and sold our stakes in Parkway Holdings [Singapore arm of Parkway Pantai] and now, when we have taken Fortis global; each time we have been asked ‘why’… I don’t blame the analysts for asking questions, but we are doing what is best for the company, which is to become a leading, international integrated health care player.”
When the company announced the sale of its Vietnam unit in June 2013, analysts didn’t ask many questions. The highly leveraged balance sheet provided the answers. Nonetheless, these decisions mark a considerable U-turn in Fortis’s strategy. The 50:50 split between international business and Indian business in 2012 is now changed to 30:70. When Quality Healthcare goes, the ratio will change further. Fortis wants to focus on India, says the management now. What then becomes of the global ambitions? Did those roughly right decisions come at a huge price?
No gain, much loss?
In Vietnam, the business grew by 18 to 20 percent and the margins swelled to 35 percent, numbers that the company had never seen in its lifetime. In Hong Kong, Quality Healthcare had traditionally grown at 3 to 4 percent but under Fortis it grew 8 to 10 percent, and margins were up from single digits to high double digits. Even in Singapore, which is a mature health care market and businesses hardly see spectacular growth, Bali claims that at Radlink, a radiology asset in its portfolio, the margins have grown 20 percent.
“India is defined by [number of] beds, rather than competencies,” says Suresh Soni, founder and chief executive of Nova Medical Centres, which has attracted medical talent from Fortis. That’s a wrong model, he believes, where there’s a race to fill hospital beds, many times unnecessarily. On the contrary, health care providers should be in the operating room business. This has been standard practice around the world for the last 30 years, he says.
(This story appears in the 09 August, 2013 issue of Forbes India. To visit our Archives, click here.)