ET was the
first to report about the deal to sell Suburban on June 17.
The development comes amid consolidation and heightened investor interest in the diagnostics sector due to the Covid-19 pandemic, with new-age online pharmacy company
PharmEasy buying 66% in listed diagnostics chain Thyrocare in June.
As per the filings to the bourses, LPL said it had paid 18.5x of FY22 audited Earnings Before Interest Taxes Depreciation and Amortisation (Ebitda) of Suburban as a valuation matrix for the acquisition.
The Mumbai-based diagnostics chain, backed by Sequoia Capital, was put on the block earlier this year and had received bids ranging from Rs 800 crore to Rs 1,200 crore, ET reported in June.
Suburban Diagnostics has seen business jump since the pandemic’s onset last year.
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While other pathological tests declined, Covid-19 related testing and home collections have registered a major increase.
For the financial year ended March 31, Suburban’s revenues stood at Rs 294 crore with Ebitda of Rs 57.5 crore.
In its filings, LPL said the deal would be funded through its existing cash reserves.
“Western India region is a strategic priority for LPL. Suburban Diagnostics is a platform acquisition for LPL. A platform to leverage Suburban’s strong consumer and medical brand recognition, wide network and professional management team to further accelerate its growth trajectory,” the company said.
The acquisition gives LPL access to 44 laboratories and diagnostics centres (one of which is CAP accredited and five are NABL accredited) and 150+ collection centres, it said
Sanjay Arora, founder of Suburban Diagnostics, will join LPL as Group Medical Director.
Ernst & Young acted as financial advisors and L&L Partners (formerly, Luthra & Luthra, Law offices) acted as legal advisors to LPL; Avendus Capital & Candle Partners acted as financial advisors and Phoenix Legal acted as legal advisor to Suburban Diagnostics.
In 2012,
Sequoia Capital first invested Rs 40 crore in Suburban and the VC fund has been drawing up an exit plan over the last few years. Suburban had explored several options including an IPO in the past, ET had reported.
The diagnostic industry has emerged as an attractive play in India’s growing healthcare sector and is one of the fastest growing service segments in the country.
The domestic industry is estimated at $9.5 billion and is expected to grow at a compounded annual growth rate (CAGR) of around 11% over the next five years, largely driven by increased healthcare spending by an aging population, rising income levels, higher awareness of preventive testing, according to a March 2021 report by HDFC Securities.
The segment is currently dominated by high volume and low-cost testing activities.
“The market share is categorized as: unorganized (47%), hospital-based lab (37%) while the remaining (around 16%) is with the organized players,” the report said.
Doctor referrals constitute a large part of this business. This includes commission payments to doctors in lieu of referring to a diagnostic lab. Further, the illness diagnosis segment is more prevalent than the wellness segment in India.
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