Final Exam

RSM433
Advanced Corporate Finance
Instructor(s): Claire Celerier

Duration: 4 hours
Eliot Capital and the Solar Health IPO
“If I give you the money, could you make this an Asian healthcare champion?”

— Elise Xin, Chairman of Solar Health, Founder of Eliot Capital Group

In March 2016, Elise Xin, founder of Eliot Capital and chairman of the board of Solar Health, paused—briefly—
to look out his eighth story window down on the umbrellas in the Singapore street. For him, this week was busier
than usual, as he needed to carve two days from it to attend a training program for board members of public
companies in Singapore. He was about to be the chairman of a public company. Only three years after investing in
Solar Health, a provider of enterprise health management solutions, Elise and the management team planned to
take it public on Singapore’s stock exchange. The company had grown from an $40 million valuation to more than
$1 billion two years ahead of an aggressive growth plan.

Solar Health was founded in 2011 by Michael Tan and Daniel Chan, doctors who had worked for one of
Singapore’s most prestigious hospital groups, and turned around a struggling hospital. Eliot Capital had backed
the management buyout (MBO) of Solar Health by Tan and Chan in 2013. Challenging the founders to make Solar
Health a regional champion, Elise provided $1501 million to finance Solar Health’s expansion through the
acquisition of 23 companies in five countries—Singapore, Indonesia, Australia, Malaysia, and Hong Kong—by
March 2016. The company had also expanded vertically and now offered primary and specialty care as well as
diagnostic imaging, third-party administration of healthcare claims, ancillary care, and other services.

Eliot Capital was closely linked to Solar Health —both literally and figuratively. After the MBO in February 2013,
the two organizations had been co-located in a building that Eliot Capital owned, and a number of Eliot Capital’s
executives worked on projects for or were seconded to Solar Health. This structure was part of Elise’s vision for
the firm and its portfolio companies.
The initial public offering (IPO) was planned for the summer. As she hurried to her next meeting, Elise recalled
her recent conversation with Tan and Solar Health’s Group CFO, Dr. Ramesh Rajentheran. All three agreed on
taking the company public, even though they discussed concerns. According to pro-forma estimates, if they
waited to float Solar Health until 2018—the date in the original plan for the company—its revenues and market
cap would have likely doubled, so they were doubtless giving up some growth (see Exhibit 2 for Solar Health’s
illustrative financials). In addition, selling the 20% to 25% stake as planned would dilute the current shareholders.
Moreover, the current schedule imposed significant challenges as Rajentheran and his small finance team
brought the company’s reporting and governance methods up to public market standards.

Yet the IPO seemed to offer long-term benefits for Solar Health and for Eliot Capital. The IPO would provide
Solar Health with additional capital, cachet, and stock to be used as acquisition currency. All of these would
position the company to increase its growth in an industry that was poised to expand throughout Asia. Would
everything continue to unfold as planned, Elise thought, or was she missing an important detail? Given the
dilution that the IPO implied, however, would they be better advised to delay the IPO for more growth?

Background
Singapore and Private Equity
Strategically located along the Strait of Malacca, a vital shipping lane between East Asia and markets in India,
the Middle East, Africa, and Europe, Singapore had been a center of commerce since the early 19th century

By the turn of the millennium, Singapore was consistently ranked at or near the top of a number of key global
measures of economic and human development. In 2015, for instance, the World Bank ranked Singapore first—
for the tenth consecutive year—on its “Ease of Doing Business Index,” a gauge of the degree to which a nation’s
regulatory environment facilitated the founding and operation of a local business. The United States, by contrast,
ranked seventh in 2015. Singapore’s technology infrastructure was also world class. The World Economic Forum
placed Singapore at the top of its 2015 Networked Readiness Index, which measured the ease with which
businesses could capitalize on opportunities created by information and communications technology.5
According to the World Health Organization’s 2015 data, Singapore’s citizens boasted the world’s third-highest
life expectancy (83 years), behind only Japan and San Marino.6 Although income inequality remained relatively
high according to 2014 data,7 Singapore’s GDP per capita, at $83.799, was the world’s seventh-highest; the
United States, at $55,540, ranked 11th.8

The country’s consistently high rankings on business-related measures and human development indices led
economists to speak of the “Singapore model” of economic development. While individual definitions varied,
nearly all accounts of Singapore’s dramatic economic growth during the latter half of the 20th century noted the
country’s capital-friendly regulatory environment, Lee Kuan Yew’s business-friendly and incorruptible—if
autocratic—leadership, and extensive government intervention and planning in support of the simultaneous
development of manufacturing- and service- based economies.

Private Equity in Emerging Asia

The private equity (PE) industry in Asia as a whole and Emerging Asia in particular was relatively small
compared to that in the west, and it was dominated by China and India. For Asia, 2015’s fundraising fell by 7%
and its capital investment by 14% from the year before, driven largely by China’s slowdown. China-focused
fundraising fell to 27% of the Emerging Asia total, from 30% in 2014 and a high of 63% in 2011. Singapore, on the
other hand, reached a record for annual private equity deals in 2015, with a total of 68, and a Singaporean
company was one of the six largest Exits/IPOs of the year.

Within the smaller context of the Association of Southeast Asian Nations (ASEAN, composed of Singapore,
Indonesia, Malaysia, Philippines, Thailand, Brunei Darussalam, Vietnam, Laos, Myanmar, and Cambodia), 2015’s
PE activity also slowed compared to the level of the year before.

Asian Healthcare
The healthcare industry in Asia was at the early stages of fundamental growth driven by demographic and
economic trends. Anticipated Asian population growth of 19.9% between 2015 and 2050 indicated more
individuals seeking to consume healthcare. By 2050, Asia was expected to have more than 60% of the world’s
elderly, a demographic that tended to require more healthcare. In fact, the growth of the “oldest old” segment
(over 80 years of age) in Southeast Asia was expected to surpass that of East Asia between 2025 and 2050. The
demographic dynamic would be reinforced by a rising incidence of chronic diseases such as diabetes, cancer, high
blood pressure, and obesity. The ability to pay for the care required by aging and disease would come from rising
levels of GDP per capita— between 2012 and 2030, Asia’s GDP per capita was projected to grow by more than
3.0% per year, compared to 1.7% forecast for the U.S. over the same period. The healthcare spending of
Indonesia, Malaysia, Thailand, and Singapore (the so-called ASEAN-4) in 2013 averaged 3.9% of GDP and
substantially trailed the Organization for Economic Cooperation and Development (OECD) average of 13.1%. By
2020, the average healthcare spending for the ASEAN-4 was projected to be 5.1% of GDP. Thus, for Asia in
general and ASEAN in particular, the next 15 to 30 years indicated growing need for healthcare and a growing
ability to pay for it.

In Asian countries—particularly those of interest to Solar Health: China, Hong Kong, Australia, Singapore,
Malaysia, and Indonesia—the structure of the healthcare system offered significant opportunities for private
providers. Governments provided basic healthcare through public clinics. These facilities, however, were
generally over-crowded and the quality of the care was inconsistent. Private healthcare spending was growing
as rising incomes allowed individuals to augment public services with private care. Furthermore, faced with
substandard public health facilities, many big corporations offered healthcare to their employees at on-site clinics
staffed by outsourced, private providers. In Australia and Indonesia, for instance, big mining companies provided
on-site care to their employees.

Some of the biggest Asian healthcare companies were Singapore-based IHH, which owned the Parkway
hospital chain, Thailand’s Bangkok Dusit, and India’s Apollo (see Exhibit 2 for financials). Although these groups
provided some enterprise health management services, their major focus was on running hospitals. Solar
Health’s niche, enterprise health management, was a fragmented market valued at approximately $21.0 billion
in 2015. It was expected to reach $36.7 billion by 2020, growing at a compounded annual rate of 7.5%. This growth
was spurred by rising healthcare costs faced by corporations and their growing need for a value-based,
integrated, and cost-effective solution, along with the costs of an aging workforce. By integrating its healthcare
services with customized healthcare management and advisory services, Eliot Capital believed, Solar Health could
create value for the corporation, its employees, and insurers. Its concept of offering preventive services
represented a major shift from the region’s traditional model of treatment when required, which resulted in more
expensive interventions for sicker individuals.

This approach had been tested in the U.S. in the 1990s with the introduction of “managed care,” an effort to
reduce health care costs and improve outcomes. The original model had not achieved the desired outcomes,
inspiring further experimentation to best achieve the so-called “Triple Aim” of improved quality outcomes and
patient satisfaction; improved health for a defined population; and reduced costs per capita for health care. In
Asia, this approach had not yet been widely adopted.

Eliot Capital Group (Eliot Capital)

Elise founded Eliot Capital in 2009 to “do private equity differently.” Her background included stints at
Goldman Sachs, where she worked on the first-ever transaction the firm had secured in the Kingdom of Saudi
Arabia. The project, which required her to commute to and from the country for almost nine months in 2003,
left an indelible mark on her. In 2004 and 2005, Elise was part of the team that ran the IPO of the Dutch navigation
company TomTom; subsequently, she left to pursue her master of business administration (MBA) at Harvard
Business School. During business school, she did an internship with Goldman Sachs’ Asia Special Situations Group,
where, as she said, “I was at the cutting edge of creative financial structuring.” After graduating, she joined the
insurance group AIG’s Investment Corporation (AIGIC, now Pinebridge) in Hong Kong to focus on special
situations and distressed investing. Elise said, “It was a four-person operation, like Goldman’s Asia Special
Situations in the early days. I could be part of a start-up and that really appealed.” Between March 2007 and May
2008, AIGIC deployed $12 billion globally, and Elise’s team alone deployed close to $1 billion.
Upon moving back to Singapore in 2009, Elise decided that she was ready to embark on the entrepreneurial
journey to establish her own investment firm. She said, “I wanted to be a principal, not an agent. And I wanted to
provide capital that was value-added, partnership-oriented and more importantly, long-term.” Her philosophy of
private equity was based on her multifaceted background. She explained, “When I was at Goldman, family friends
would ask me for advice when they wanted to list their businesses or raise capital. Later, these family friends who
had been approached by big private equity firms would ask me to review the term sheets they had received. It
was clear from these terms that private equity didn’t have the entrepreneurs’ best interests at heart—or even a
long-term goal.”

Through much of 2009 and 2010, Elise did background research. In searching for quantitative information on
the impact and influence of family businesses in Asia, she discovered that there was very little available. She
proceeded to undertake her own quantitative research analysis and discovered that family-affiliated businesses
accounted for close to 70% of the public market capitalization in Asia. “Knowing the demographic drivers of Asia,
the growth in GDP and spending, and the generational transitions likely to occur helped me frame my vision for
Eliot Capital,” she said. “I had identified four sectors that seemed to have promising long-term growth
trajectories: healthcare, education, agribusiness, and advanced manufacturing. The next challenge, of course,
was execution.”

In 2010 and 2011, Elise was investing in prime real estate and acquired the firm’s current location at 108
Robinson Road, one of Singapore’s most prestigious streets in the Central Business District. She commented, “I
was really interested in growth equity investment. So I needed to figure out a way to do it that would conform to
my vision and principles, and most importantly, to be able to Do Well and Do Good.”

In early 2012, Elise received a call from a fellow weekend soccer player, Dr. Michael Tan. The two had been in
close contact since 2010, when Tan was debating whether to leave his position as a manager at one of the biggest
Singapore healthcare providers to start his own company. Two years later, Tan was at a strategic crossroads with
the backers and majority shareholders of his company, Solar Health. He needed Elise’s advice.

Solar Health
Tan had founded Solar Health in 2011 along with his colleague and fellow doctor, Daniel Chan, after the two
had worked together as managers for the Parkway Hospital group in the mid-2000s. In 2008, Tan had been offered
the position of CEO at either of two Parkway hospitals: a four-star operation or one that had a decade of losses
and a different CEO for each year. In choosing the latter, Tan noted, “I thought I would learn more there.” Chan
joined him to turn the hospital around and by the end of 2011, it had moved from annual losses of close to
S$500,000 to profits of roughly S$5.0 million. Among the improvements had been recruitment of younger doctors
who charged less than the established doctors who had worked there, renovation of the facilities, and the
implementation of a customer- focused approach that included service ambassadors for patient assistance as
well as benefits such as free Wi-Fi. Tan said, “I did a lot of work managing stakeholders—doctors, employees,
and so forth. And I got bitten by the entrepreneurial bug.”

In mid-2010, Tan was offered a promotion at Parkway. He also received three other job offers and was thinking
about starting his own company. “The driving criteria,” he said, “was that I wanted to make a difference.” He
decided to start Solar Health in early 2011 and Chan joined him. Unlike Parkway, Solar Health would not operate
hospitals. The pair saw an opportunity to provide Enterprise Healthcare Management, which included two broad
areas: managed care and the provision of healthcare services. The healthcare services were provided through
clinics affiliated and co-located with a corporation. These services would include primary care and specialty
services such as physiotherapy, psychotherapy, cardiology, and the like. Diagnostic services such as imaging (X-
Rays and MRIs) could be done through ancillary services that the company owned. The managed care aspect of
the model involved providing third party administration (TPA) services such as the processing, collating, and
coding of insurance claims, as well as health analytics, cost containment, and advisory services. The customers
would include companies that would send their employees to Solar Health’s on-site clinics, and insurance
companies for whom Solar Health would provide claims-related TPA work. The company also provided cost
management by ensuring that procedures were properly coded and priced. Commented the current CFO,
Ramesh Rajentheran, “Because our work controls costs, we are not always popular.”

Early Days
The first decision involved whether to build an operation from scratch or to acquire a company or two and
“turn something decent into something awesome,” Tan said. For funding, a private equity investor who was an
acquaintance of Chan’s agreed to provide the initial seed capital and promised to back them for five to seven
years.

By early 2011, Tan and Chan had acquired two Singapore-based enterprise healthcare providers with 10
clinics between them. Tan recalled, “They had no marketing or sales operations and no technology platform. We
built our own platform in six months. It allows seamless processing of medical claims to generate invoices for
third party payment, insurance companies, and employee groups.” With added rigor in managing costs, profits
grew to S$2.5 million.

In 2012, though, Tan and Chan found themselves at the crossroads with the private equity firm due to different
strategic objectives and exit expectations. The investors were seeking to realize an attractive financial return in the
near term, but Tan resisted, feeling responsible to the employees who had followed him from Parkway and the
clients who had taken a risk on a start-up due to confidence in the two founders. The two co-founders believed
that they had a mission to make healthcare in Asia more accessible and affordable, and a near term exit would
not allow them to realize this objective. They contacted Elise to engage her support for a management buyout
(MBO) to regain control of the company.

Negotiating the MBO agreement with the private equity firm took close to a year. Tan said, “At the start of the
due diligence process, Elise had not committed to participate. But as soon as she understood the business model—
a scalable business-to-business service industry addressing a growing healthcare market paid by third-party
providers—Elise agreed to support us.” The private equity firm wanted— and received—close to 3x the original
seed investment for the company.

Becoming Eliot Capital’s Portfolio Company

To fund the transaction, which closed in February 2013, Elise co-opted two institutional co- investors who acted
as partners alongside Eliot Capital. Eliot Capital, as the controlling and largest shareholder of the company,
became closely enmeshed with Solar Health; in fact, Elise was the company’s first interim CFO and both
operations were co-located in Eliot Capital’s building. Commented several executives, “The level of trust
between the management and the investor is truly unique.” Elise sought to align the interests of the executive
team and the shareholders. He said:

The earlier private equity investor had given management 1% of the company’s equity. If they met budget,
they’d get 2% more per year; if they did not meet budget, they’d get nothing for that year. I didn’t see that as
aspirational. Instead, I decided I’d give the founders 10% up front, restricted and vested. Then we jointly
developed a five-year business plan that was a real stretch. If they did not meet those milestones, Eliot Capital
could claw back 2% per year—but management could regain that ownership if they outperformed in the
future. If they met the milestones, they would receive another 5% unrestricted. The net financial outcome
would have been good for the management if milestones were met; however, the key was the motivational
drivers to not lose the restricted vested equity were significant.

This unconventional approach to performance compensation resulted in severe criticism and resistance from
the co-investors.

The founders agreed to three principles that Elise laid out for Eliot Capital’s investment:

1. Think globally or Asia-wide, not just Singapore.

2. Treat employees well and share the upside with them.
3. Be a business with a moral conscience.

Of these three principles, only the first represented a change of philosophy for Tan and Chan. Chan said, “When
Michael and I started in 2011, we thought that if we could get to the size of Parkway—the Singapore market
leader—we would declare victory. Expanding to be pan-Asian was a real stretch, but we looked at each other and
said, ‘Why not?’”

Growing Solar Health

 Since 2013, the team had spent close to $210 million to make 23 acquisitions across Asia. Acquisitions
averaged between $20 million and $40 million. “To get up to speed, we needed to invest in operating group and
local healthcare leaders in various Asian countries,” said Elise. “Happily, we had a number of options. Many
Singaporean businesses fail in regional expansion. We were looking for good operational companies that had hit
the ceiling of their own ability to expand into other Asian countries.”

Solar Health was shown a large number of deals, most of which were small operations. Tan and Chan
commented, “We probably evaluate five or six companies for every one we acquire. The management team is
critical for us. Doctors are generally resistant to change and if we are not confident that they share our high
standards and dedication to the greater good, we do not want to work with them.”

Important sources of referrals were doctors or entrepreneurs who already ran Solar Health-associated
companies, existing clients who needed better healthcare provided to their employees in other locations, and
insurance companies that had a presence in a given region and wanted Solar Health to manage claims. CFO
Rajentheran commented:

An insurer who works with us in Singapore will ask us to move into a certain country and represent
with confidence a certain amount of business for us. We know the nuances of medicine in Asia and
the ways that items will be coded. Because we have doctors reviewing the billing, we can make
sure that items are coded correctly. It’s much easier for the insurers to have us correct the bills in
Asia than for them to try to do so in their offices in the U.S. or Europe. Existing corporates for
whom we run healthcare in other countries will ask us to move into a country where the quality of
healthcare is poor sometimes.

Responsibilities for assessing potential acquisitions were well defined and split between the Solar Health and
Eliot Capital teams. Sherwin Loh, a managing director of Eliot Capital, commented, “We let the doctors determine
the quality of the medicine and the management team, and then they run the business. We do all the M&A and
other related work—due diligence, debt management, investor relations, and so forth.” To ensure that the
target’s management team would remain with the business, the deals were structured to provide them with
minority ownership of 20% to 40%. The combined Solar Health and Eliot Capital team provided capital, business
development advice, IT system integration, and governance improvement to help the acquisition grow. To ensure
that operational improvements would be executed, Solar Health insisted on majority control.

Commented Rajentheran about acquisitions:

The acquisition multiple is only one factor although we do try to keep it at single digits wherever
possible. We buy profitable businesses because it’s harder to turn around the attitude of people in
loss-making companies. Our advantage is that we have volume—we control lives not supply. We
don’t build supply and hope to find demand. Instead, we look for cultural and strategic fit, price
discipline, prospects, how easily we can increase its profits, and how quickly we can integrate it.

With their background in PE and investment banking, the senior executives were comfortable in negotiating
and closing deals across the region.

Eliot Capital took a counter-intuitive approach to funding the acquisitions, as Elise explained. “In Asia, the
average private equity deal is done with leverage of 3-5x EBITDA, 40% to 60% of the enterprise value. But I didn’t
want to use leverage to increase the return on investment multiple—we’re not planning to sell the asset for a
long time. We just need to grow the business. The first $150 million we invested had no debt at all. We have only
used debt to show we’re efficient in managing our capital structure.”

Eliot Capital did not operate a classic private equity fund, but offered co-investors the chance to participate
in the deals. Each co-investor’s economics varied based on the value it could provide to the investment team and
to Solar Health. Some co-investors paid the standard 2% fee and 20% carry. Others, such as sovereign wealth
funds that could provide assistance in entering a country, had a different arrangement. Commented CP Tei, Eliot
Capital managing director, “We can be more flexible because we don’t have traditional limited partners. We can
make qualitative decisions about fees. We may not see immediate income but we will have long-term strategic
value.” Loh added, “We identify the right party to invest with us for the right reasons, and then make the fee/carry
decision. The question is always how to build the business. We are already investors in the business. A strategic
investor can add incremental alpha returns to the investment—and if we were to insist on a 2.5% fee (instead of
accepting a lower number), we wouldn’t gain anything in the long term.” As Solar Health became better known
in the investment community, would-be co-investors had started to approach Eliot Capital to participate in the
deal and future opportunities.

At the start of 2015, Solar Health had S$200 million in equity capital and no debt. Its EBITDA was S$31 million.
Elise called for a tender with seven commercial and corporate banks, asking them to pitch their best financing
proposal, then an unusual approach to working with commercial banks. He said, “Now we have S$400 million of
equity capital and S$100 million in debt. We are borrowing at cost.
Banks line up to give us credit. We never could have gotten a package like this in 2013 because Solar Health was only
an S$40 million business. What we have done was not a market norm, but it was right for the business.”

The acquisitions When Eliot Capital invested in 2013, Solar Health had 12 clinics and roughly 160 employees
in Singapore, and managed approximately 75,000 lives. By early 2016, the company had 193 clinics, close to 1,600
employees, and worked with more than 25,000 companies to provide care to 8 million lives, across five countries.
In addition, Solar Health had almost 8,000 third-party (in-network) clinics and other affiliated healthcare facilities.

Since 2013, Solar Health had made a number of acquisitions and provided different services in different
geographies:

• Singapore: Occupational healthcare, medical benefits management, primary and secondary care,
diagnostic imaging. First acquisition in 2011.
• Australia: Occupational health, medical benefits management, and primary care to corporate
customers. First acquisition in 2013.
• Hong Kong: Medical benefits management, primary care, dental services. First acquisition in 2013.
• Indonesia: Medical benefits management and primary care to corporate customers. First acquisition in
2014.
• Malaysia: Medical benefits management and primary care to corporate customers. First acquisition in
2014.

Solar Health’s largest acquisition was RadLink, the largest stand-alone private provider of diagnostic and
molecular imaging services in Singapore. Owned by Fortis, an India-based healthcare provider, the operation had
been put up for sale in 2014 but the deal fell through due to anti-competition concerns. Solar Health had
participated in the initial due diligence, but withdrew from the bidding as the price rose. In early 2015, the deal
opened again and Solar Health was asked if it had any interest. Commented Kuen Loon Ho, Solar Health’s chief
risk officer, “When the company came back on the market, the issue was speed. We had less than a month to do
due diligence and get the financing. The banks and the seller needed assurance that we could do the deal—and
we wanted to keep it from going to auction. So we were able to use our equity and obtained debt for the
transaction, which closed at S$103 million ($73 million). The original deal had been at S$133 million.”

Tan commented, “Having RadLink is very helpful for Solar Health. We can keep the diagnostic testing within
the network, which increases our share of our patients’ healthcare spend.” In less than a year under Solar Health’s
ownership, the company’s EBITDA had risen by more than 30%.
 Post-merger integration was a critical part of Solar Health’s success. “The issue,” said Rajentheran, “is how
quickly we can integrate the acquired company.” The Solar Health team relied on the Solar Health Business
System (FBS), which had been greatly influenced by the Toyota-based Danaher Business System.27 Commented
Ho, “We come in with a clear set of priorities. First is the financial system. We take control of accounts, employee
records, and reporting structure. We implement SAP across all of our acquisitions to centralize the accounts.
Generally, the company has not had enough infrastructure
support to grow smoothly. Then we review the cash flow. We create a clear plan and work together on
implementing it.”

Treating employees well The Eliot Capital team played an important role in building out the Solar Health
management team. Elise said:

I’ve been fully engaged with Solar Health. I’m on the same side of the table with management
and we can solve problems together side by side. The whole Eliot Capital team spends close to 80%
to 90% of their time with Solar Health. We have identified and helped recruit various members of
the senior management team to augment the founders. All of these recruits have taken big leaps of
faith—and cuts in salary—to join this business. They see the allure of transforming healthcare in
Asia, and they want to work with like-minded people, people who are passionate and aggressive in
pursuing their dreams. I’m also trying to institutionalize Solar Health’s management, and we’re
making progress there too.

Perhaps the most concrete demonstration of treating employees well was the design and implementation of
the Employee Stock Ownership Plan (ESOP) for Solar Health, which was unusual in its financial size and in the
breadth of staff it covered. In contrast to typical ESOPs, which provided 10% to 20% of the company’s equity to
employees, Solar Health’s gave close to 30%. Moreover, the allocation went to almost everyone in the company,
from senior executives to janitors. Elise commented, “The average tea lady in Solar Health has an ESOP of close
to 5x her annual salary. It made everyone owners of the business. Although this was probably the hardest decision
we have had to make and defend— whilst it was a huge wealth transfer—it has also created significant value for
us.”

Floating Solar Health

Solar Health’s original stretch business plan assumed the company would achieve an S$1 billion market
capitalization in 2018 if it went public. Instead, Solar Health would achieve that objective by 2016. Elise said, “We
don’t plan to exit at the IPO. Instead, we want to use the IPO proceeds to increase Solar Health’s growth. A liquid
stock will give us a new currency for continued growth in Asia through acquiring more companies.”

Chan agreed that the IPO would be helpful in the company’s business interactions with its clients. “Our clients
are multinational companies. Many of our competitors are also public. For us to be public gives Solar Health more
stature, more credibility, and more transparency.”

The team expected Solar Health to grow from its current five countries to as many as 10, becoming a truly
pan Asian integrated healthcare player. Currently, said Rajentheran:

We provide enterprise healthcare, primary and secondary care. We have a pharmacy license in
Singapore so we can fill prescriptions. We provide third-party claims administration for insurance
companies. But we can grow in so many ways as the population grows and ages and incomes rise.
We can do more to deliver the best care to the lives entrusted to us, to improve their quality of
life. Eliot Capital is the right partner for us to have on this journey, as their timeline is as long as
ours.

The team agreed that a major challenge for Solar Health would be institutionalizing the company itself.
Rajentheran said, “We have 6 months to learn how to be a listed company.” Ho agreed, saying, “Solar Health has
been all-entrepreneurial. Now it will need to become half-entrepreneur and half- institution. In addition, our
competitors will know more about us when we have to file public reports.”
Another critical issue would be defining and maintaining the Solar Health culture. “We were co- located on
the same floor with Eliot Capital up until last year,” said Chan. “Elise and her team were in and out of our offices
all the time. Now we are one floor away and we’re still in and out of each other’s offices. But as Solar Health
grows, we will need to create more formal methods of communication and work hard to identify and encourage
the unique Solar Health culture.”

An important part of the culture was embodied in the Solar Health Foundation, which Elise had established
and led. Tan said, “We take one day per quarter and provide free healthcare to underserved citizens. To me, this
is the most important thing we do.”

Eliot Capital Legacy

Thinking about Eliot Capital and its potential expansion, Elise said:

I’m doing this for two reasons. First is its impact on Asia and on the lives of people who did not
have the educational opportunities that I had. And also because I want to create a legacy. I’m not
talking about a name on a building. I want to leverage for-profit platforms to have not-for-profit
impact. I want Eliot Capital to outlive me, creating enduring institutions that matter and embodying
traditional Confucian values. I want to bridge East and West.

I want Eliot Capital to be a catalyst and leader in building Asia for the long term, and I strongly
believe that we can do well and do good at the same time. My generation, which grew up in Asia,
has been unbelievably fortunate to live through the rise of the Asian economies and China. We
have benefitted from access to the highest standards of education. All of this makes it even more
imperative that my peers and I take the responsibility and initiative to ensure that the same
conditions that allowed us to prosper not only endure but improve for our future generations.

Would Solar Health’s IPO be the next step toward achieving that vision?
 Questions

1. How does Eliot Capital create value for its Limited Partners? How does it differ from traditional
Private Equity funds? Would you or would you not want to be an Eliot Capital LP? Why or Why
not? (15 points)

2. Do you think Eliot Capital’s market leverage is optimal? Justify (10 points)

3. What is the minimum listing price Eliot Capital should accept in March 2016? Explain in detail
all the steps of your analysis and make your own assumptions when needed. (35 points)

4. What could be the other alternatives to raise funds? What are the costs and benefits? (15 points)

5. Should Eliot Capital proceed with the IPO or should they hold off and follow their original plan
of a 2018 listing? What are the risks and advantages of these approaches? (15 points)

6. At the end of the case, Elise explains her vision for Eliot Capital. What do you think? How and to
whom should Elise pitch her idea? What do you anticipate would be her biggest challenges? (10
points)

Bonus Question (10 points)

About financial distress…

What is a self-fulfilling equilibrium of financial distress? Give an example
Why does the bankruptcy code vary so much across countries?