WestBridge leads acquisition bid for Star Health

Private equity firm, WestBridge Capital led investor's group which includes ace stock market investor Rakesh Jhunjhunwala, has emerged as the frontrunner to acquire India’s largest independent health insurance company Star Health and Allied Insurance valued at just under $1 billion, people directly aware of the matter said.

The WestBridge consortium’s all-cash offer has pulled ahead in a tight race with ICICI Lombard and is holding advanced talks for an impending deal. The group is learnt to have matched ICICI Lombard’s offer, valuing Star Health at about Rs 6,500 crore, people privy to the talks told TOI.

ICICI Lombard, which placed a cash-cum-share swap offer, insisted on exclusivity to take discussions forward, which Star Health and its investors weren’t keen on, sources cited earlier said. A joint bid by PremjiInvest, the family office of IT major Wipro’s founder Azim Premji, and Prudential was another contender in the fray.

The country’s first stand-alone health insurance venture is the brainchild of V Jagannathan, former head of public sector insurer United India Insurance. The company’s financial investors — Sequoia Capital, Tata Capital, ICICI Venture, Apis Partners and Oman Insurance Company — are all seeking an exit in a transaction which is being advised by Kotak Mahindra Bank.

If the talks stay on track, the WestBridge consortium could enter into definitive negotiations within a fortnight with Star Health. Star Health’s Jagannathan did not offer any comments on the development, while a mail sent to WestBridge did not elicit a response till the time of going to press.

A shareholder stand-off between Star Health’s original promoter ETA, a Middle Eastern group, and some of the company’s other investors has delayed the deal. Star kicked off the sale talks in October last year. The management, led by Jagannathan, will have a say in deciding on the sale of the company, which also deals in personal accident and travel insurance covers.

If the transaction avoids further hiccups, this would be the biggest bet by WestBridge — an India-focused private equity investor, managing assets worth more than $2.5 billion. The deal-making activity in financial services, and insurance in particular, has picked up pace with established players getting into merger and acquisition mode.

Smaller insurers have been struggling to meet solvency requirements in a high-growth and hyper-competitive industry poised for consolidation. Existing investors find the timing ripe to cash out as valuation benchmarks in the insurance sector were being established through a slew of initial public offers (IPOs) and M&A activity. In February this year, TOI first reported that HDFC Ergo was in discussions to acquire Apollo Munich in yet another consolidation move in health insurance, though the transaction has been stalled, for the time being at least.Star Health’s promoter group holds close to around 44%, of which 37.5% is with domestic and 6.16% is with foreign investors. Star Health’s total foreign investment in the company stood at 36.5% as against the maximum permissible 49% shareholding.

The company’s paid-up capital stood at Rs 456 crore. The company had reported a net profit of Rs 118 crore from a total premium of Rs 2,960 crore in FY17. It had incurred a claims ratio of 60%.

The total health insurance market in India stood at Rs 34,527 crore last fiscal — up 26% from Rs 27,457 crore in the previous year.