This article first appeared in The Edge Malaysia Weekly on January 17, 2022 - January 23, 2022

PRIVATE equity firms Southern Capital and TPG have surfaced as contenders to acquire IHH Healthcare Bhd’s International Medical University Malaysia (IMU), but sources familiar with the matter say that Southern Capital could be the front runner to bag the deal.

It is understood that IHH and Southern Capital have held talks that indicate Southern Capital is the preferred bidder, but details on the negotiations are scarce. A high-ranking executive of Southern Capital declined to comment on the firm being the favourite when approached by The Edge.

Nevertheless, one source says, “Southern Capital is ahead [of TPG]. They [IHH] have been discussing agreements with Southern Capital, which normally implies they are in discussions with a preferred bidder.” He adds that TPG and IHH have not held such negotiations and there has been a lag in communications between the two.

No further details were available at press time. It is also not clear if there are other interested bidders left in the race. Initially, Quadria Capital, a private equity fund specialising in healthcare, was said to be keen but it has since dropped out of the race.

Quadria’s withdrawal could be because IMU’s business is in education and not healthcare per se. IMU offers pre-university, undergraduate and postgraduate studies, and has under its belt five schools and two centres in the faculty of medicine and health, including dentistry, alternative medicine and pharmacy.

The Edge did not reach out to IHH and its officials as there are bound to be non-disclosure agreements in place.

When news first broke of the possible sale of IMU in March last year, the sale was touted to fetch about US$300 million. It was also reported that Rippledot Capital Advisers had been appointed by IHH to help with the sale.

A check of Companies Commission of Malaysia filings reveals that IMU Health Sdn Bhd, a wholly-owned unit of IHH, has two wholly-owned subsidiaries — IMU Education Sdn Bhd and IMC Education Sdn Bhd. Both have businesses in education, namely “establishing and carrying on the business of managing educational institutions, colleges, schools and other centres of learning, research and education” and “provision of educational programmes and training courses for healthcare and related fields”, respectively.

For its financial year ended December 2020 (FY2020), IMU Health chalked up after-tax profits of RM45.85 million from RM240.15 million in revenue. Interestingly, it paid out RM40 million in dividends to its parent in FY2020. Over the last five years, from FY2016 to FY2020, IMU Health paid out RM232.5 million in dividends.

As at end-December 2020, IMU Health had total assets of RM543.4 million and total liabilities of RM193.55 million. During the period in review, it had RM121.65 million in retained earnings.

While IMU Health’s numbers may look good, IHH is a giant with 80 hospitals in 10 countries, and controls medical centres under the Mount Elizabeth, Pantai, Gleneagles, Parkway and Prince Court banners, among others. At its close of RM6.58 last Friday, IHH had a market capitalisation of RM57.88 billion.

For the nine months ended September last year, IHH reported RM1.41 billion in net profit from RM12.66 billion in revenue. As at end-September last year, it had cash and cash equivalents of RM4.03 billion, and total assets in excess of RM45 billion. During the period in review, IHH had long-term debt commitments of RM7.28 billion while its short-term borrowings were pegged at RM1.43 billion.

IHH’s retained earnings as at end-September were at RM5.26 billion.

Southern Capital, which has offices in Singapore and Kuala Lumpur, specialises in leveraged buyouts of businesses. According to its website, the company has investments in Qualitas, which has 191 general practice clinics in Malaysia, seven dental clinics in Singapore, 14 general practice medical centres in New Zealand and two general practice clinics in Australia, and Fullerton Healthcare which has 13 clinics in Singapore providing integrated healthcare services, among others.

Southern Capital is linked to Tan Sri Tan Teong Hean, who was the controlling shareholder of Southern Bank Bhd prior to its being taken over by CIMB Group Holdings Bhd in 2006. Tan, who is an experienced banker, having helmed Southern Bank for 23 years, is the chairman of Southern Capital’s investment committee.

As at mid-2021, TPG had US$11.5 billion invested in healthcare. On the local front, it has been linked to the privatisation of KPJ Healthcare Bhd in partnership with the hospital operator’s largest shareholder, Johor Corp Bhd. While there have been reports of the privatisation plan being shelved, many say a deal is still brewing.

News reports have it that TPG was looking at KPJ’s 28 hospitals and what could be done with the Columbia Asia Hospital chain — comprising 17 hospitals in Malaysia, Indonesia and Vietnam — that the PE fund and the Hong Leong group acquired for US$1.2 billion in September 2019.

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