[UPDATE: On April 30, Manipal Hospitals announced that it had completed the acquisition of Columbia Asia Hospitals.]

In the summer of 2020, Ranjan Pai was fighting two battles. On one hand, the chairman of Manipal Education and Medical Group (MEMG) was trying to limit the effects of a national lockdown on his hospital chain, Manipal Hospitals. On the other, the 48-year-old billionaire entrepreneur was trying to salvage a big-ticket acquisition that would kickstart his long-held dream of a pan-India hospital chain.

Then in November, Bengaluru-based Manipal Health Enterprises Private Limited (MHEPL), which runs Manipal Hospitals, announced it would buy Columbia Asia Hospitals in India for about ₹2,200 crore in cash. That will give the predominantly south India-focussed MHEPL a presence in cities such as Kolkata, Gurugram, Ghaziabad, Patiala, and Pune. The combined entity will operate 7,300 beds in 27 hospitals across 15 cities, making it India’s second-largest hospital chain after Chennai-based Apollo Hospitals.

The deal not only helps Pai—a doctor by training, but better known as a successful entrepreneur and investor—reduce MHEPL’s dependence on a few geographies and hospitals, but comes as a sort of vindication after previous failed attempts at mega deals. The first was in 2017, when Pai and TPG Capital, one of the world’s largest private equity firms and a long-term MHEPL investor, went after Gurugram-based Fortis Healthcare, a deal that would have catapulted Manipal Hospitals past Apollo Hospitals. The second marquee deal that fell through was for Gurugram-based Medanta in 2019.

It was sometime in the middle of that same year that Seattle-based Columbia Pacific Management approached Pai to buy the 11 hospitals it ran in India. The timing was perfect for Pai, who has an aggressive growth-by-acquisition mindset but is known to be a prudent dealmaker. “You always come out wiser from your past experiences,” says Pai, looking back at the twists and turns in the months-long bidding war for Fortis. MHEPL thrice revised its offer for Fortis and its subsidiary, SRL Diagnostics, the last of which was about ₹3,300 crore. Eventually, Malaysia-based IHH Healthcare acquired Fortis for ₹4,000 crore.

“Unlike the Fortis deal, this [Columbia Asia Hospitals] deal was a more private deal, with a clear shareholding pattern. This was a combination of both parties wanting to do a deal and willing to compromise to get it done,” says Pai. The deal was supposed to close in March 2020, but the onset of the Covid-19 pandemic and the ensuing national lockdown put paid to that.

In late March last year, Pai got on a long phone call with Nate McLemore, managing director for international healthcare at Columbia Pacific Management, to discuss the implications of the lockdown and putting the deal on hold. “We waited till June to reconnect. We reworked on the deal a bit and eventually went ahead with it,” says Pai.

MHEPL will control 60% of the combined entity, while TPG Capital will own 21.5%. The remaining 18.5% will be held by another MHEPL investor, Sheares Healthcare, a unit of Singapore’s state-owned investment company Temasek Holdings. Columbia Pacific Management sold its Southeast Asia business—one clinic and 17 hospitals across Malaysia, Indonesia, and Vietnam—to Malaysia-based conglomerate Hong Leong Group and alternative asset firm TPG for about $1.2 billion in 2019.

“They tried to sell the India business as well to Hong Leong Group and TPG, but they were not too keen. So they ran a separate process for India,” says Pai. The Competition Commission of India (CCI), India’s antitrust watchdog, approved the domestic deal in January, but Pai expects a final clearance by the end of April following some last-minute legalities and checks.

Pai’s healthcare business, which contributes 50% of the Manipal Group’s (MEMG) top line, has always been beloved by investors. Last month, India’s sovereign wealth fund, the National Investment and Infrastructure Fund Limited, pumped ₹2,100 crore into the business through its private equity (PE) fund, NIIF Strategic Opportunities Fund. This was the PE fund’s first investment in the Indian healthcare sector and gave it a minority stake in Manipal Hospitals.

“Manipal [Hospitals] has demonstrated a track record of good governance, strong management, growth, and value creation over the years. We are pleased to invest in Manipal at a time when the group is embarking on a highly important expansion from a regionally important healthcare company to a pan-India chain,” says Sujoy Bose, managing director and CEO, NIIF.

Pai plans to utilise some of the funds to buy out Premji Invest, the family office of Wipro’s founder-chairman Azim Premji that invested $125 million into Manipal Global Education Services (MaGE), the education business of MEMG, in 2015.

Dilip Jose, MD and CEO, MHEPL
Dilip Jose, MD and CEO, MHEPL
Image : By special arrangement

Accumulating funds has never been an issue for Pai. And for good reason. Both his healthcare and education businesses have offered profitable exits to multiple investors, netting them an average return of 18%-20%. “All my investors are for the long term. I have a very strong relationship with all of them,” says Pai.

One such is R. Venkatesh, CEO of Sheares Healthcare. He has known Pai for more than a decade and tracked Manipal’s healthcare business long before 2017, when he bought out private equity investor True North’s 18% stake in MHEPL for ₹1,100 crore.

“Manipal Hospitals is a dominant healthcare franchise in the south, with a professionally run management team and very limited involvement by the promoters, except for strategy and direction,” says Venkatesh. He says the Manipal Group’s strong and well-known brand in the education sector rubs off onto the healthcare business. “As a Group, it has a high level of ethics, governance, and integrity.”

Puneet Bhatia, co-managing partner and country head, India, TPG Capital Asia, concurs. “The Manipal brand is a powerful franchise that helps when they enter a new city or market. The ability to attract talent is much higher than the competition.” However, Bhatia feels there is a dissonance between the scale and reach of Manipal as a brand and as a business.

“When I first met Ranjan [Pai] I told him that this is a brand that resonates with all as we have grown up knowing Manipal education, especially in the medical fraternity. But when I look at the scale of the healthcare business, there is a disconnect,” says Bhatia, who is on the board of Manipal Hospitals.

That anomaly, which the Columbia Asia deal will rectify to a large extent, isn’t entirely surprising given Pai’s family has been one of the pioneers in the Indian education sector. His grandfather, Tonse Madhava Ananth Pai, set up the Kasturba Medical College—the country’s first private, self-financed medical college—in 1953. His father, Ramdas Madhav Pai, is a Padma Bhushan awardee and chancellor of Manipal Academy of Higher Education (MAHE).

Pai, too, initially planned to continue with the family’s not-for-profit education trust MAHE, but instead chose to expand, especially in healthcare. He started MEMG in 2000 out of a rented house in Bengaluru, and with a capital of $200,000.

Today, the privately-held entity is valued at about $3 billion and includes MHEPL, MaGE (which runs for-profit universities in Antigua, Dubai, Malaysia, and Nepal), e-learning platform UNext Learning, ManipalCigna Health Insurance, as well as stem cell research company Stempeutics Research. While half of the group’s revenue comes from healthcare, roughly 37% is from education, and the other businesses account for the remainder.

Image : Graphic by Chetan Singh

But Pai’s ambitions of a pan-India healthcare business are far from satiated. After all, MHEPL is still absent in key cities such as Mumbai, Chennai, and Hyderabad. The group is working on deals in markets such as Kerala, Hyderabad, and the eastern region of the country, says Dilip Jose, managing director and CEO, MHEPL. He adds that besides a right geographic fit, they also look for reasonably-sized hospitals (about 200-250 beds) that can be scaled up.

One such deal is reportedly for Emami Group’s AMRI Hospitals, which has three super speciality hospitals and a day-care centre in its home base of Kolkata and a hospital in Bhubaneswar. So laser-focussed on India is Pai that MHEPL divested its stake in Malaysia’s Manipal Hospitals Klang last month, exiting its only healthcare business outside the country. That money will fund the domestic expansion.

Healthcare experts note that Manipal Hospitals has built its business around the tertiary-care model, but limited its dependence on any particular specialisation to about 10%. In comparison, roughly 40% of Bengaluru-based Narayana Health’s revenue comes from cardiology and cardiac surgery, while 21% of Apollo Hospitals’ revenue is from cardiology.

“As a clinical provider, we are well diversified. We have built a robust business model that is not dependent on certain medical practices or [a] few star doctors. Our doctors are competent and highly skilled, but we don’t overpay to get star doctors,” says TPG Capital’s Bhatia.

Experts say that it’s the brand, rather than a renowned doctor, that attracts patients to Manipal Hospitals, as is common in markets such as the U.S. and Singapore. About 20% of Manipal’s total expenses are on doctors, compared with 25% at similar sized hospitals. Pai knows there is a need for good hospitals with large networks that can attract skilled doctors.

The Columbia Asia deal will help not only in that regard but also give MHEPL the scale to negotiate better contracts with suppliers. Furthermore, Jose says, “the processes, protocols, and doctor engagements at Columbia Asia Hospitals are similar to what Manipal Hospitals does. Therefore, integration at the operational level will be faster.”

H. Sudarshan Ballal, chairman, MHEPL
H. Sudarshan Ballal, chairman, MHEPL
Image : Selvaprakash Lakshmanan

The Covid-19 pandemic was but a hiccup in MHEPL’s expansion plans. “There were some initial delays in our expansion plans because of the pandemic, but we are back on track with the Columbia Asia deal. Besides, we are also looking at the right opportunities to expand our footprint across the country,” says H. Sudarshan Ballal, chairman, MHEPL.

But it was a slightly different story at its hospitals. Patient footfall at Manipal Hospitals slumped 65%-70% in April and May last year after the national lockdown. “The lockdown was scary and, for the first time, all hospitals started losing money. Beds were empty with all the running costs to bear,” says Pai.

But as the country slowly opened up, business picked up. MHEPL’s recovery started in July and by October, its revenue had returned to pre-Covid-19 levels.

“I think the most fulfilling part was our customer service during the pandemic. We got so many positive reviews from our patients for the services our frontline workers provided. It was the most satisfying part for me in the past year,” says Pai.

Pai has then won both his battles, but the war is far from over. As Bhatia notes, “We aren’t a listed company and aren’t chasing quarterly profits alone. This allows us to build a culture and ethos across a company that is distinctly Manipal. This has always been Ranjan’s philosophy—build for the long haul.”

(The story originally appeared in Fortune India's May 2021 issue).

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