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Asian healthcare a big draw for PE

Temasek Holdings’ latest acquisition of a hospital chain in India shows that favorable demographics, rising incomes and favourable government policies are driving the surge in healthcare deals in the region.

Singapore state investor Temasek Holdings is in the process of acquiring India’s third largest third-largest hospital chain Manipal Health Enterprises, from Indian private equity firm True North, according to a Competition Commission of India filing. The deal is valued as much as $1.2 billion, local media has reported.

“As an investor with a long view, we are invested in long term trends, such as the healthcare requirements of ageing societies,” a Temasek spokesman told Private Equity International.

Temasek is part of a growing number of investors and private equity firms that are investing heavily in Asia’s healthcare industry, betting on rising incomes and surging demand for quality healthcare products and services.

In July, the healthcare-focused firm Quadria Capital picked up stakes in Singapore multi-specialty medical group MWH Holdings and Hanoi-based healthcare provider FV Hospitals, while Indian private equity firm True North invested $200 million for a 40 percent stake in Kerala Institute of Medical Sciences in March.

Asia-Pacific healthcare deal activity was strong in 2016 with a total of 52 buyouts at $3.2 billion, according to Bain & Company’s Global Healthcare Private Equity and Corporate M&A Report 2017. The biggest deal last year was the A$1.7 billion ($1.3 billion; €1.1 billion) acquisition of Australian cancer and cardiac services provider GenesisCare by Macquarie Capital and Hong Kong-based China Resources Group from KKR.

Other notable transactions in 2016 also included Bain Capital Private Equity’s controlling stake in Chinese hospital group Asia Pacific Medical Group, Carlyle Group’s investment Zhongmei Healthcare Group, and Warburg’s acquisition of gynaecology and paediatrics hospital chain UIB.

Demographics is one of the major drivers of investments – an ageing population, swelling middle class as well as the increase of chronic and communicable diseases – have made the sector attractive to private equity investors, the Bain report noted. Governments have also eased barriers to foreign direct investment. In China for example, its 13th Five-Year Plan, which draws up social and economic initiatives, encourages investments in healthcare providers, medtech and healthcare information technology.

The strong demand for APAC healthcare is also being seen on the fundraising front. According to PEI data, 13 private equity firms with healthcare as a major strategy raised an aggregate $16 billion in 2016, compared with 24 firms that collected $12.5 billion in 2014.

In May this year for example, Highland Capital Management’s South Korean unit held a $147 million final close on its debut Asia-focused healthcare fund. Singapore-headquartered Quadria Capital, one of the most active healthcare-focused firms in Asia, is targeting $450 million for its next fund, which will be used to back companies in South and South-East Asia.

At the same time however, investors focused on healthcare are concerned about the scarcity of scale assets and heated competition for deals. Abrar Mir, Quadria founder and managing partner told PEI he has seen consistently high multiples in the sector, trading anywhere between 20x and 30x.

“In the private markets, those multiples are not sustainable and it would be very difficult for institutions to make investments,” he said. “Getting access to cutting edge high equality and affordable healthcare is always an issue in Asia, and that is why the sector offers a lot of opportunities for private equity firms,” he said.