Metropolis Healthcare's planned acquisition of Hitech Diagnostic Centre faces uncertainty following PharmEasy's acquisition of Thyrocare, which has altered valuation expectations in the diagnostic sector.
Mumbai-based Metropolis Healthcare's ambition to acquire Chennai's Dr Ganesan’s Hitech Diagnostic Centre is now mired in uncertainty. A deal that seemed imminent in January, with Metropolis offering a combination of cash and stock valued at ₹617 crore ($83 million), is now on shaky ground as Hitech has seemingly gone silent. Metropolis aimed to secure a stronger foothold in South India, particularly in Chennai, through this acquisition.
The deal's complications appear to stem from PharmEasy's recent blockbuster acquisition of a majority stake in Thyrocare for ₹4,546 crore ($612 million). This transaction significantly impacted valuation benchmarks within the diagnostics industry. Dr. Arokiaswamy Velumani, Thyrocare's promoter, also invested ₹1,500 crore ($202 million) in PharmEasy, further bolstering PharmEasy's valuation to $4 billion. The PharmEasy-Thyrocare deal created a higher valuation expectation among sellers.
The initial Metropolis offer included ₹511 crore in cash and ₹106 crore in Metropolis shares. However, the PharmEasy-Thyrocare deal seems to have recalibrated Hitech's expectations, creating a potential hurdle for the Metropolis acquisition. While Metropolis seeks to consolidate its position in a fragmented market, Hitech, which had been looking for an exit, now appears hesitant to proceed under the initially agreed terms.
The diagnostics sector is currently experiencing a consolidation phase, with larger players looking to acquire smaller companies. Whether Metropolis and Hitech can bridge the valuation gap created by the PharmEasy-Thyrocare transaction remains to be seen.
