Harvard Case - Sahrudaya Health Care Pvt. Ltd. (2017): Towards a Term Sheet
"Sahrudaya Health Care Pvt. Ltd. (2017): Towards a Term Sheet" Harvard business case study is written by Ramana Sonti, Lalita Anand. It deals with the challenges in the field of Finance. The case study is 25 page(s) long and it was first published on : Mar 24, 2022
At Fern Fort University, we recommend that Sahrudaya Health Care Pvt. Ltd. (SHCPL) pursue a strategic partnership with a reputable private equity firm to secure the necessary funding for its expansion plans. This partnership should be structured to ensure SHCPL retains a significant stake in the company while benefiting from the financial expertise and operational guidance of the private equity investor.
2. Background
Sahrudaya Health Care Pvt. Ltd. is a rapidly growing healthcare provider in India, specializing in affordable and accessible healthcare services. The company faces a critical juncture as it seeks to expand its operations, particularly in the emerging markets of tier 2 and tier 3 cities. The case study highlights the company's need for significant capital investment to fuel its growth ambitions.
The main protagonists in the case are:
- Dr. S.K. Sharma: Founder and Managing Director of SHCPL, a visionary entrepreneur with a strong commitment to providing quality healthcare.
- Mr. R.K. Gupta: Chief Financial Officer of SHCPL, responsible for managing the company's financial strategy and seeking investment opportunities.
- Potential Private Equity Investors: Representing various financial institutions interested in investing in SHCPL's growth potential.
3. Analysis of the Case Study
This case study can be analyzed through the lens of Financial Strategy, Mergers and Acquisitions, and Investment Management.
Financial Analysis:
- Profitability: SHCPL demonstrates strong profitability with a healthy net profit margin. However, the company's current financial resources are insufficient to fund its ambitious expansion plans.
- Capital Budgeting: SHCPL needs to conduct a thorough capital budgeting analysis to assess the financial viability of its expansion projects, considering factors like the cost of capital, expected return on investment (ROI), and payback period.
- Financial Forecasting: SHCPL should develop comprehensive financial forecasts to project future revenue growth, cash flow, and profitability based on its expansion plans.
- Risk Assessment: SHCPL must identify and assess the risks associated with its expansion, including market competition, regulatory changes, and potential economic downturns.
Mergers and Acquisitions:
- Valuation Methods: SHCPL needs to determine its fair market value to attract potential investors and negotiate favorable terms. This can be achieved through various valuation methods, including discounted cash flow analysis, comparable company analysis, and precedent transaction analysis.
- Negotiation Strategies: SHCPL should develop a clear negotiation strategy to secure a partnership that aligns with its long-term goals and minimizes dilution of its ownership.
- Due Diligence: SHCPL must conduct thorough due diligence on potential investors to evaluate their financial capabilities, track record, and alignment with SHCPL's values.
Investment Management:
- Private Equity: Private equity investments can provide SHCPL with the necessary capital and expertise to accelerate its growth. However, it's crucial to choose a partner with a strong track record in the healthcare sector and a commitment to sustainable growth.
- Financial Markets: SHCPL should explore various financial markets and instruments to secure the most advantageous financing options, including debt financing, equity financing, and hybrid financing structures.
- Risk Management: SHCPL needs to develop a comprehensive risk management framework to mitigate potential financial risks associated with its expansion and investment decisions.
4. Recommendations
- Seek a Strategic Partnership with a Private Equity Firm: SHCPL should actively engage with reputable private equity firms specializing in healthcare investments. This partnership will provide the necessary capital for expansion, access to financial and operational expertise, and a network of industry contacts.
- Develop a Comprehensive Term Sheet: The term sheet should clearly define the terms of the partnership, including the equity stake acquired by the private equity firm, the investment amount, the governance structure, and the exit strategy.
- Conduct Thorough Due Diligence: SHCPL should conduct extensive due diligence on potential investors, evaluating their financial stability, investment track record, and alignment with SHCPL's values and mission.
- Negotiate Favorable Terms: SHCPL should negotiate a term sheet that ensures a balance between securing necessary funding and retaining control over its operations and strategic direction.
- Utilize a Combination of Debt and Equity Financing: To optimize its capital structure, SHCPL should explore a combination of debt and equity financing. This allows for a balanced approach, leveraging the advantages of both debt and equity financing.
5. Basis of Recommendations
These recommendations consider the following factors:
- Core Competencies and Consistency with Mission: The partnership with a private equity firm aligns with SHCPL's mission of providing accessible and affordable healthcare by providing the necessary resources for expansion.
- External Customers and Internal Clients: The expansion plans will benefit external customers by increasing access to quality healthcare services and internal clients by providing opportunities for career growth and development.
- Competitors: The partnership will enhance SHCPL's competitive position by providing the resources to compete effectively in the growing healthcare market.
- Attractiveness: The partnership is attractive based on the potential for significant ROI, a strong track record of SHCPL's profitability, and the growing demand for healthcare services in India.
- Assumptions: The recommendations assume the availability of suitable private equity investors, the successful execution of SHCPL's expansion plans, and the continued growth of the healthcare sector in India.
6. Conclusion
By pursuing a strategic partnership with a private equity firm, SHCPL can secure the necessary funding to fuel its expansion plans and solidify its position as a leading healthcare provider in India. This partnership will provide access to capital, expertise, and a network of industry contacts, enabling SHCPL to achieve its growth objectives while maintaining its commitment to providing affordable and accessible healthcare.
7. Discussion
Alternatives:
- Debt Financing: While debt financing can provide capital, it increases the company's debt burden and may limit its flexibility.
- IPO: Going public can provide significant capital but involves complex regulatory processes, increased public scrutiny, and potential dilution of ownership.
Risks:
- Loss of Control: SHCPL needs to carefully negotiate the terms of the partnership to avoid excessive dilution of ownership and maintain control over its operations.
- Misaligned Interests: The private equity firm's investment horizon and exit strategy should align with SHCPL's long-term goals.
- Market Volatility: Economic downturns or changes in government policy could impact the healthcare sector and affect SHCPL's growth trajectory.
Key Assumptions:
- The availability of suitable private equity investors with a strong track record in the healthcare sector.
- The successful execution of SHCPL's expansion plans and the achievement of projected financial returns.
- The continued growth of the healthcare sector in India and the increasing demand for affordable healthcare services.
8. Next Steps
- Identify and shortlist potential private equity investors: SHCPL should initiate contact with reputable private equity firms specializing in healthcare investments.
- Develop a comprehensive term sheet: SHCPL should prepare a detailed term sheet outlining the key terms of the partnership, including equity stake, investment amount, governance structure, and exit strategy.
- Conduct due diligence: SHCPL should conduct thorough due diligence on shortlisted investors to evaluate their financial capabilities, track record, and alignment with SHCPL's values.
- Negotiate and finalize the partnership agreement: SHCPL should negotiate favorable terms with the selected private equity firm and finalize the partnership agreement.
- Implement the expansion plans: SHCPL should leverage the investment capital and expertise from the private equity firm to implement its expansion plans effectively.
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Case Description
In 2017, Sahrudaya Healthcare Pvt. Ltd. (SHPL), a successful chain of corporate hospitals based out of Hyderabad, India, approached private equity (PE) firm Samara Capital for a capital infusion. After conducting a thorough due diligence and evaluation of the company, Samara Capital brought its major limited partner (LP) Medicover, a European multinational healthcare and diagnostics company, into the decision-making process. In a surprise turn of events for SPHL, Medicover offered to become a strategic partner and invest in SPHL. With the new proposal on the table, top executives from Samara Capital, Medicover, and SHPL attended a high-level meeting in New Delhi to discuss the modalities of the term sheet.
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