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M&A transactions in India's hospital sector whether structured as acquisitions, platform consolidations, joint ventures or minority investments, operate within a legal and regulatory framework that differs materially from conventional corporate transactions.
As consolidation and private capital participation accelerate across tertiary care, specialty hospitals and regional networks, investors and acquirers increasingly encounter diligence risks unique to this sector. Many of these risks are not readily identifiable through standard financial or legal reviews, yet they have a direct bearing on valuation, risk allocation and post-closing integration. This article highlights recurring issues encountered in M&A transactions pertaining to hospitals.
Platform deals in healthcare space
In recent years, a prominent trend emerging in the Indian healthcare sector is platform style consolidation led by global private equity investors. This has led to aggregation of hospital assets under one platform allowing rapid scaling and operational standardization.
In platform deals, the key factor driving negotiations is the need to strike a balance between the relatively short investment horizon for private equity investors and the long gestation period for development of hospital infrastructure and medical practices. The level of dependence on the promoters who are also the key doctors also has a bearing on the negotiations. The rights package of such promoter directors, including their right to receive an upside in case the investor exit exceeds certain pre-agreed thresholds also become critical, to ensure their long-term involvement and drive towards expansion and growth.
Land and concession linked obligations
A significant proportion of hospital facilities in India are situated on government-allotted, institutional or concessional land. As a result, title diligence extends beyond ownership verification and requires close scrutiny of allotment letters, lease deeds, development approvals and applicable policy frameworks.
Such arrangements often impose restrictions on transfer or change of control, require prior government approvals, limit commercial use or mandate the provision of services to economically weaker sections (EWS). Given the fragmented nature of local planning regulations and the fact that certain institutional policies are not publicly available, transaction timelines must account for regulatory engagement and clarification of continuing obligations.
The consequences of breach may include financial penalties, enforcement action or challenges to asset transfers, making early identification of land-use conditions critical to transaction feasibility and structuring.
Hospitals operating on concessional land or through trust structures may also be subject to obligations to provide free or subsidised treatment to EWS patients. These obligations may arise under state regulations, project approvals or judicial directives. Diligence must therefore assess both the existence of such obligations and historical compliance, supported by patient records and financial data. Acquirers must ensure that operational models, pricing frameworks and projections adequately reflect the cost and continuity of these commitments.
Where hospitals are owned or operated by public charitable trusts, a careful scrutiny of the state trust legislation becomes critical to ensure that there are no potential roadblocks or restrictions or approval requirements.
Trust structure and charitable oversight
Hospitals in India are often promoted or operated through public charitable trusts, societies or not-for-profit entities, either for tax efficiency or to meet regulatory and land allotment requirements. Where this is the case, transactions may trigger oversight by Charity Commissioners or other authorities under state trust laws.
Regulators typically assess whether a proposed transaction aligns with the charitable objectives of the trust and whether trust property is being alienated or commercially exploited. This can constrain deal structures and necessitate alternative approaches such as operating company transfers or long-term service arrangements.
Obtaining trust-related approvals can be time-consuming and uncertain, making advance planning, regulatory engagement and realistic closing timelines essential to deal execution.
Regulatory Approvals, Building and Fire Safety Compliance
Hospital transactions require extensive diligence due to the broad regulatory framework governing healthcare operations. Mandatory registrations under state clinical establishment laws are a prerequisite for operating hospitals. In addition, several medical devices and equipment, particularly radiation-generating machines, are subject to stringent regulatory controls.
Hospitals conducting clinical trials must obtain prior approval from central regulatory authorities, along with clearance of trial protocols by duly constituted and registered ethics committees responsible for ongoing oversight and ethical compliance.
Statutory building approvals and fire safety licences are critical diligence items, given the inherent risk profile of healthcare facilities housing vulnerable patients. Following recent high-profile hospital fire incidents, compliance with the National Building Code of India, 2016 and applicable state fire safety legislation has assumed heightened importance, particularly for foreign and institutional investors concerned about reputational exposure.
In several states, possession of a valid fire safety certificate is a prerequisite for securing or renewing clinical establishment licences. Consequently, ongoing compliance with building and fire safety norms is often addressed through enhanced representations, warranties and indemnities, as well as specific covenants in shareholders' agreements. Breach of such covenants typically attracts stricter consequences compared to other operational defaults.
Arrangements with doctors, consultants and incentive structures
A hospital's operational and financial performance is closely linked to the contractual arrangements it maintains with doctors and consultants. These may include revenue-sharing models, visiting consultant agreements, affiliation structures and referral-based incentive arrangements. Retention of key medical talent is therefore directly connected to revenue stability, making these arrangements a critical integration risk in M&A transactions.
Of particular importance are incentive schemes extended to doctors engaged as retainers or consultants rather than employees. As such professionals are not eligible for conventional employee stock option plans, hospitals often adopt alternative incentive structures to align interests.
The impact of these arrangements on post-closing capital structure, dilution, governance rights and tax treatment requires careful analysis during diligence and transaction structuring. Failure to appropriately account for such schemes can materially affect valuation and post-acquisition alignment.
Conclusion
Given the distinct nature of the hospital and healthcare ecosystem, it becomes essential to view the considerations outlined in this article not merely as risk flags but as critical inputs for structuring discussions, negotiating rights and obligations, and calibrating closing conditions, indemnity packages and long‑term governance frameworks.
Early identification of sector specific issues unique to hospitals and healthcare enables more accurate valuation, tailored contractual protections and smoother post-acquisition integration. As consolidation in Indian healthcare gains momentum, the ability to navigate these complexities will remain central to successful investment outcomes.
[The authors are Executive Partner and Partner, respectively, in General Corporate and M&A at Lakshmikumaran & Sridharan Attorneys]
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
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