Investments into the healthcare industry by Private Equity shops have been booming recently, accounting for roughly 15% of the global buyouts in 2023. Asia-Pacific countries have been the latest region in the sights of these firms, becoming the target of investors seeking to capitalize on high synergy potential alongside promising macroeconomic growth prospects. Nevertheless, healthcare buyouts pose challenges as questions have been raised over the alignment of the firms’ priorities with the patients' needs.

The healthcare system in Asia 

As can be expected, the structure and quality of the healthcare systems differ from country to country - South Korea and Singapore have some of the most sophisticated public health systems, though the same can’t be said for countries such as India, the Philippines, and Indonesia. In these countries, public healthcare is provided free of cost but, due to the lack of a sufficient government budget allocated to the health sector, these are viewed as unreliable and of poor quality. Thus, individuals will always opt for higher quality private health facilities if they can afford them, leading the healthcare industries in these countries to become increasingly private-dependent, relying on the private sector to provide what the government budget is unable to.  
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The demand for quality (and thus private) healthcare has seen a significant rise in Southeast Asia and India, with macroeconomic and demographic factors driving this growth. As these countries continue developing, income continues to rise, and in turn so does demand for good healthcare. Nowadays, much of the population of these countries has studied or lived abroad, becoming accustomed to a more ‘Western’ lifestyle that, along with the expectation of better-quality healthcare, also comes an array of new health issues (namely cardiovascular disease and diabetes) that need to be dealt with. Health as a whole has also become much more of a priority after the COVID-19 pandemic, the effects of which are still being felt in many Asian countries. Another key driver is the fact that many populations in Asia are aging, with the proportion of people aged 60 and above in ASEAN nations expected to rise from 9.8% in 2017 to 13.7% in 2030 and 20.3% in 2050. This creates an almost inevitable increase in demand for healthcare.  ​

Why does the Private Equity model work so well in the healthcare industry? 

The model used in buyout shops and other PE and alternative firms displays a wide range of factors that provide strong synergies with the healthcare sector. The first reason why Private Equity funds and institutional investors are keen on the industry is because of its resilience in adverse economic condition, as it is not a cyclical business. In fact, the sector resisted during the Dotcom bubble in 2000 and during the Great Financial Crisis in 2008. Simply put - people can’t wait for better economic conditions to receive medical care. Furthermore, the healthcare industry has been relatively unchanged by the innovation that has brought down costs in other sectors. PE funds are convinced they can add value by making companies more efficient, spurring innovation and enhancing synergies in this fragmented industry. The necessity for efficiency in healthcare is reflected by the rush of executives in the industry to integrate new AI technology. In the US, 80% of healthcare providers are accelerating spending on IT and AI. Global healthcare companies are collaborating with tech start-ups to transform drug discovery, treatment, monitoring, biotech, and outcome prediction capabilities. This pursuit to modernize could be the key for the industry to attract private capital, from funds looking to increase operating margins. 
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APAC’s healthcare industries are currently seeing the most activity from buyout firms, looking to diversify their presence. For example, India’s economic growth and business-friendly government are attracting capital. APAC’s share of global healthcare Private Equity deals is rising, from 17% in 2022 to 26% in 2023. ​

Source: Bain & Co.

Even though in 2023, the deal activity in APAC region was slightly lower than 2022 levels, the change was less drastic as compared to US and Europe, whose deal value fell 44% year over year, from $25 billion in 2022 to $14 billion in 2023. While China remained relevant for investments, India accounted for the most significant portion of transaction value. This country was the main choice for investors looking to manage geopolitical risk, also because of the long-term rise in biopharma activity, such as active pharmaceutical ingredient manufacturing. Moreover, private spending has risen in APAC, as economic growth enlarges the middle class where health concerns are gaining significance and spending gradually increases, especially after the pandemic. In India, with disposable income taking an upturn, new insurance technology such as Insurtech and private players like Digit or Acko are growing faster than ever, becoming more accessible to the population. Meanwhile, government health expenditure has risen in the last decade from 29% in 2015 to 39% in 2021. India alone accounted for over 30% of regions deal value from 2022 to 2023. Multi-specialty hospitals have seen various transactions with Temasek’s acquisition of 41% of Manipal Health Enterprises for $2 billion and Blackstone's purchase of the controlling stake in Care Hospitals for $800M. Single specialty has also been under the spotlight with the acquisition by BPEA EQT of Indira IVF valued at $1.1 billion. These highlight the fact that firms have finally noticed that the risk-adjusted return of investing in India is very attractive.

New challenges are rising 
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The elephant in the room is the strong contrast between the acquirer’s goals and hospitals’ ones. While buyouts need to provide high IRR, often resorting to cutting costs and increasing EBITDA margin, hospitals (should) seek the health of their patients at any cost. New concerns have been raised by healthcare industry experts as studies are being conducted on PE-managed hospitals that show increasing chances of accidents during surgeries and transfusions. The renowned JAMA, Journal of American Medical Association, has published a paper comparing PE-managed hospitals to control hospitals. Patients have experienced a 25% increase in hospital-acquired conditions and a 37% increase in bloodstream infections, despite a reduction of 8% in surgical volume. Hospitals have also experienced a slight decrease in mortality, but this is rather explained by the shift in admission toward young patients.  
While balancing margin with patient health remains the main issue, liquidity challenges are faced in the industry. The main cause of these issues is the need for longer holding periods, extending the average 5-year investment horizon. Despite this challenge, Fund Sponsors found two main ways to achieve a regular internal rate of returns. First, they are seeking returns by investing in value creation opportunities, with accentuation on pricing and margin expansion, and secondly, by exploring secondary transaction such as early exits or continuation vehicles. The latter is a secondary structure in which General Partners transfer assets from a fund that has reached the end of the terms into a new fund. This mechanic allows GPs to retain and re-invest assets with growth potential while providing Limited Partners with the option to “sell and roll” their stakes. ​

How deals are conducted in the industry 
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When an investment fund supported by Private Equity firms acquires a profitable company, it uses the company’s assets for the debt as collateral, usually with a 70% of stake being debt. The fund consists of General Partners, the Principals of the PE firm and Limited Partners such as pension funds or wealthy individuals, with the first ones usually providing only 2% of the total capital used in acquisitions. 

The PE firms usually come up, together with the CEO, with a 100-day plan to meet with the firm’s expectations. This practice often leads to significant consequences for the companies, with hours-cutting, compensation reduction and sometimes even firing workers. The Board of Directors may also require engaging in dividend recapitalization issuing low-grade bonds. Additionally, the company could be forced to sell off real estate assets to repay loans for which the asset was used as collateral. As a result of all these measures, a portfolio company may lack the resources to react to business cycle fluctuations and changes in customer preferences. 

As mentioned throughout the article, buyout shops have recently shifted capital away from other sectors into healthcare. Looking at LBOs alone, the percentage of capital invested in the US' healthcare industry has more than doubled, from 5% in 2000 to 14% in 2018. 

Source: CEPR Working paper No. 118, BSCM​

M&A activity in healthcare is among the highest of any sector, and this has led many to worry about monopoly in certain segments, with some recent studies showing that this has led to higher healthcare costs for patients in consolidated markets. Moreover, the issues are also largely present in a fragmented market, where Private Equity firms serve mostly as an aggregator before selling. A popular sub-segment was Urgent Care, because it requires limited staffing, a narrow range of permanent hires with less medical expertise and they can also guarantee lower pay. Because of this strategy, the availability of Urgent Care clinics became skewed towards certain states, leaving only 5% of centers (in the US) available in small towns where people with little access to good medical care would need it the most. The same consequences were faced in the ambulatory surgery sub-segment, where 94% were located in highly urbanized area, subtracting medical assistance from the part of the population who is less likely to afford to be transferred to larger clinics in urban centers. This trend could severely affect APAC countries, where many patients are waiting for their health to deteriorate badly enough for them to go directly to the ER, rather than doing regular check-ups. 

Deal flow – regaining confidence 
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As interest rates kept rising, LBOs became less attractive in recent years with PE firms accumulating an increasing amount of dry powder. This in turn, also affected M&A activity in the region, where in 2021 it reached a peak value of deals of $200.5 billion and then fell throughout the past 2 years with deal value in 2023 reaching $90.6 billion. Of the deals in 2023, 22 were PE-backed, down from 38 deals the previous year. Furthermore, there were 13 exits in 2023, accounting for $3.3 billion. The most active sector was healthcare with 36% of PE investments attributed to it, while TMT was second with 31%, followed by business services in third place with 15%.  
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In the following paragraphs we will go through what we think will be the most promising healthcare-focused investment firms as well as some notable transactions: 

Quadria Capital 

Quadria Capital, a Singapore-based healthcare-focused private equity firm, is one of Asia’s leading healthcare Private Equity fund providers and is currently looking to raise $800 million for its largest healthcare fund to date. Fund III is, as the name suggests, Quadria’s third fund and has raised $500 million as of its first close in October 2023, approximately 60% of the target fund size. Contributions have come from institutional investors, insurance and pension funds, development finance institutions and family offices worldwide, reflecting a high interest in getting a piece of the growing Asian healthcare sector. According to Quadria, ‘the fund will continue to invest in large, scalable, market-leading businesses in South and Southeast Asia with the potential to generate attractive financial returns while making a social impact on communities they serve'.  

Backed by the fund, Quadria completed a deal to invest up to $155 million in a leading private eyecare clinic in India – Maxivision Eye Hospital. This follows a series of investments into the region, with MediBuddy, Akum Drugs and Pharmaceuticals and Strand Life Sciences all being healthcare companies in India. It is apparent that the firm sees exponential opportunity for growth in this sector, citing rising regional demand and huge unmet needs as the drivers.

Manipal Health Enterprises  
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Manipal Health Enterprises, commonly known as Manipal Hospitals, is a private hospital network and is the second largest healthcare provider in India. Over the past couple of years, the company has been involved in high-value private equity acquisitions, including the largest-ever private equity deal in the healthcare sector in India. Back in October 2022, several firms, including Baring Private Equity Asia, KKR, National Investment Infrastructure Fund (NIIF), and Temasek Holdings, were involved in a $2.1 billion acquisition of Manipal Health Enterprises. Just six months later, Temasek Holdings announced its acquisition of an additional 41% stake in the company, bringing its total stake to 59%. This $2 billion deal involved both NIIF (India’s sovereign wealth fund) and private equity firm TPG selling their stakes to Temasek, as well as reduced holdings by Manipal’s founder. The deal values the company at $5 billion.  

Southeast Asia - latest activity and main players

Moving onto Southeast Asia, activity has been high and there are ongoing opportunities for investment and growth. In the Philippines, KKR is exploring the sale of its stake in Metro Pacific Health, the largest private hospital operator in the Philippines, which was acquired at a valuation of $1.6 billion in 2019. Sources say KKR is aiming for a valuation of $3 billion for its exit, representing a sizeable return. Similarly in Malaysia, Affinity Equity Partners has begun the sale of its stake in Island Hospital, one of Malaysia’s largest healthcare providers. The buyout firm acquired Island Hospital in 2015 for an undisclosed amount and is now looking to sell for approximately $800 million, with the sale reportedly attracting substantial interest from Private Equity firms and strategic investors.

Besides the aforementioned shops, SE Asia has many other firms which could potentially be the main drivers in the growing interest in healthcare and related industries. One of the most recognizable of these investors is Temasek Holdings owned by the Government of Singapore and with an AUM of $287 billion. It is famous for its investments in sustainable companies and its diversified portfolio spanning multiple industries. The firm is responsible for some of the biggest deals made by a PE in the region. Some of these transactions include the minority stake acquisition of Keppel Ltd for $9,46 billion back in 2019 and the acquisition of a 53.39% stake of Seatrium Ltd for $3,08 billion in 2021. Another well–established investor is CapitaLand; the firm is known for its real estate investments in the ASEAN region. What is particular of the firm is that it offers both REPE funds and PE funds. Its most publicized investment is the Jewel Changi Airport in Singapore. The airport is especially famous for its green scenery and its rain vortex. Furthermore, PAG is a PE firm with headquarters in Hong Kong, but with a strong presence in the ASEAN region. Some of its notable deals include its large-scale buyouts, growth capital investments, and its significant real estate investments - examples include market leaders such as Paradise Group Holdings, a Singaporean company specialized in restaurants. 

Future outlooks 
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The outlook for PE and M&A in APAC, and more specifically Southeast Asia, is shaped by robust activity in sectors like technology, healthcare, and renewable energy. These sectors will be driven by digital transformation, demographic shifts, and sustainability initiatives. Domestic and regional players are expanding, complemented by sustained foreign investments from major global economies, keen on tapping into the region's growth potential. Regulatory reforms across the region aim to attract more investments, although political and economic volatility remain concerns. Technological innovation continues to spur venture capital interest, particularly in emerging fields such as biotech. Overall, the region presents a dynamic environment with significant investment opportunities, despite facing challenges like market and regulatory uncertainties. 

As outlined in this article, the healthcare industry has drawn the attention of Private Equity investors worldwide, and there is no sign of this growing interest slowing. The market is huge, with the APAC region accounting for nearly two-thirds of the planet’s population, and the opportunities are wide, with the region’s changing healthcare needs having to be met. The sector is undergoing a period of transformation and innovation, requiring investment from Private Equity firms that want a piece of the growing pie. However, the tension between maximizing profit or patient health is likely to remain a concern. Countries with more developed markets have already faced such issues due to Private Equity owners allocating less resources to patients and this is likely to also surface in APAC. Accordingly, though the high returns and prospects that come with Private Equity ownership seem attractive, the public should be cautious as this could very well come at the patients' welfare's expense. 

By Maya Doyle, Giulio Losano, Ettore Marku, Neil Pinto 

SOURCES: 

• The Economist 
• Bain 
• S&P Global data 
• JAMA Network 
• CEPR Working paper No. 118 
• Reuters 
• WSJ 
• Bloomberg 
• FT 
• Quadria Capital