Health, Wealth, and Niva Bupa: True North's Insurance Masterstroke

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Today, we’ll look at the IPO of Niva Bupa Health Insurance and with it, the partial exit of its once majority stakeholder and an experienced Indian PE player: True North

From Max to Niva: A True North Star Is Born

In 2019, India's health insurance landscape witnessed a significant shift. Max Bupa Health Insurance, a joint venture started in 2008 between Max India and UK-based Bupa. At the time, Max India and Bupa had a 51:49 stake in the firm. Before 2019, regulations capped foreign ownership in the Indian insurance sector at 26%. This limit was subsequently raised to 49% and then raised again to 74% in 2021 - a change which Bupa was very happy to take advantage of and why not.

India’s young demographic and low insurance penetration at the time, 3.76% in 2019, made it an ideal bet and boy has it paid off. 

Reasons as to why Max completely sold off its stake were attributed to increasing expenses. It also didn’t help that the company reported a loss that year, This was the first time in the health insurance industry that a promoter had completely exited the business

Enter True North, a veteran Indian private equity firm with a keen eye for potential. In 2019, True North saw a golden opportunity in Max Bupa, acquiring the entirety of Max’s 51% stake for a cool 511 crore rupees (about $71 Million), leading to its rebranding as Niva Bupa.

 True North Finds Its 'Bupa' in Indian Insurance

The company had barely reported profits in FY2019 but this was the type of companies True North was sourcing for - mid-sized profitable companies. Mind you, despite growing their Gross written premium by ~25% YoY, Max Bupa reported a loss in 2019

2019 was also a year that saw a lot of consolidation in the health insurance space in India, with deals like the acquisition of Star Health by Indian Billionaire Investor Rakesh Jhunjhunwala and HDFC Ergo buying out Apollo Munich Health Insurance. 

Niva Mind the Profits: True North's Healthy Returns

True North’s investment paid off, in the years they were involved as the majority stakeholders the GWP rose by almost 4 times from $135 Million (947cr in 2019) to $482 Million (4000cr in 2023), and in the meantime, Niva Bupa became the 3rd largest health insurer in the country. From Max to Niva, True North had indeed given birth to a new star in India's health insurance constellation.

The plot thickened in September 2023 when True North, in a calculated move, sold a 20% stake to Bupa for a whopping 2,700 crore rupees ($325 Million) valuing their initial 51% stake at almost $812 Million which means they had achieved a valuation of more than 10x initial valuation of $71 Million. This deal coincided with True North's efforts to raise their 7th fund.

Bupa-la-oop: Market Buzzes Over Niva's IPO Plans

Now, let’s turn our attention to the news at hand, Niva Bupa is planning to raise around $360 Million, of which True North and Bupa plan to exit their stake for $225 Million and $38 Million respectively, and the remaining 96 Million by the issuance of new shares.

The IPO is expected to value the company at $2.5 Billion and the company is expected to file the papers pretty soon. With this IPO, True North is expected to retain around 28% stake in the Business, with Bupa becoming the majority shareholder at 63%

The future.

The Indian healthcare sector is witnessing unprecedented interest from global players, with deals worth $5.5 billion in 2023 alone as per a Bain report. Giants like KKR and Apollo are vying for a slice of this growing pie. However, regulatory hurdles continue to present challenges for doing business in India, tempering the pace of investment. While there are governmental schemes, such as providing insurance for the poorest 1% of the population, there are also hurdles, including the fact that spending on public healthcare infrastructure remains one of the lowest in India.

The impact of private equity involvement in this sector cannot be overstated. Take Niva Bupa, for instance. Under True North's stewardship, the company saw its gross written premiums skyrocket by 4.3 times from 2019 to 2023. This outpaces competitors like Care Health Insurance, which grew by 2.8 times in the same period. 

These figures underscore the transformative potential of PE in driving growth and efficiency. As the sector evolves, it's becoming increasingly rare to find large healthcare companies - be it hospital chains or insurance firms - without some form of PE stake. This pervasive PE involvement highlights their crucial role in shaping India's healthcare landscape

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