New Delhi, July 10 -- Three large private equity firms are now leading the race to acquire a stake in mother and childcare hospital operator Cloudnine, narrowing the contest after several potential suitors dropped out, VCCircle has gathered.

Cloudnine Hospitals, operated by Kids Clinic India Ltd, has received significant investor attention over the past few months with multiple PE firms joining the fray to pick up a significant minority stake through a transaction that is likely to include a primary infusion as well as the exit of existing backer True North.

With discussions now moving forward, British private equity firm Permira and US private equity majors KKR and TPG Capital have emerged as the frontrunners for the deal, multiple people close to the development told VCCircle.

"Permira, KKR and TPG are actively looking at the deal and are likely to move forward," one of the persons privy to the development told VCCircle. "Advent International is no longer in the race."

A second person close to the development said that the deal size has now gone up as Cloudnine is also looking to acquire a fertility clinic in the UAE. "The deal size will factor in the upcoming acquisition of an IVF facility in the UAE, taking the deal size higher compared to previous discussions," he added.

A third person said that London-based PE firm Vitruvian Partners has also joined the race. This couldn't be independently verified.

Separate emails sent to the spokespersons for Cloudnine, KKR, TPG, Permira and Vitruvian did not elicit any response till the time of writing this article.

According to a June report in The Economic Times, Warburg Pincus, KKR, TPG, Advent International, CVC Capital Partners, Permira and Kedaara Capital were in the race to acquire a 25% stake in the company at a valuation of about Rs 10,000 crore. The newspaper later reported that TPG, Advent, CVC and Permira were shortlisted for the next round of discussions at a valuation of Rs 11,000 crore.

VCCircle reported in May that Swedish private equity firm EQT and multi-stage investment firm Norwest Venture Partners had also entered the race to invest in the hospital operator.

It couldn't immediately be confirmed whether Warburg, CVC, Kedaara, EQT and Norwest were still looking at Cloudnine.

Cloudnine's existing investors-Singapore state investment firm Temasek and private equity firms True North and TPG NewQuest-were initially expected to pare their stakes as part of the deal, VCCircle reported previously. However, recent reports indicate that only True North is making a full exit while others are retaining their stakes.

Temasek and TPG NewQuest, which is the secondaries-focused arm of TPG Capital, are currently the company's biggest shareholders.

Cloudnine funding, financials

Cloudnine was founded by neonatologist R Kishore Kumar, Rohit MA, M Ramachandra and Vidya Kumar. It operates in the maternity and childcare segment. It competes with Indira IVF, Motherhood, Rainbow Hospitals, Lifespring Hospitals, as well as larger multispeciality chains such as Fortis Hospitals and Max Healthcare.

Between FY23 and FY25, the company raised around Rs 695 crore from investors. In 2023, Temasek and TPG NewQuest invested about Rs 417 crore, according to VCCEdge, the data and research platform of VCCircle. Temasek also acquired Peak XV Partners' 10% stake in Cloudnine late last year for Rs 500 crore.

In May this year, Cloudnine agreed to acquire Apollo Health's maternity, childcare and fertility businesses in a cash-and-stock deal worth Rs 1,550 crore. Under the deal, Apollo Health will get a 9.9% stake in Cloudnine worth Rs 785 crore. This effectively valued Cloudnine around Rs 7,930 crore, or around $825 million. Cloudnine is likely to command a premium in the impending PE transaction.

Since FY20, Cloudnine has remained operationally profitable but has recorded net losses. In FY25, consolidated revenue jumped 25% to Rs 1,485 crore, while net loss widened to Rs 46.5 crore from Rs 28 crore the year before, as per VCCEdge. EBITDA increased over 16% to Rs 220 crore in FY25.

The company has been expanding its network with new hospitals each year. Since starting as a single hospital in Bengaluru in 2006, Cloudnine has grown to around 40 hospitals across India. In FY25, it added seven centres and plans to invest more than Rs 200 crore to open a similar number this year, VCCircle reported earlier.

Deal activity

The women's and children's healthcare segment in India has seen rising investor interest in recent months.

In January, Danish investor Novo Holdings, the controlling shareholder of Novo Nordisk, acquired a significant minority stake in Mumbai-based Surya Hospitals, which operates in women's, neonatal and pediatric care.

Several multispecialty hospital chains are increasing their focus on the segment. Asia Healthcare Holdings' Motherhood Hospitals plans to open five new hospitals in FY27, while consolidating operations in Bengaluru, Indore, and Coimbatore. Aster DM Healthcare launched a new women and children's hospital in Hyderabad in 2024.

Published by HT Digital Content Services with permission from VC Circle.