Because of the unique rules and regulations regarding the provision of healthcare, the industry has tended to develop within national borders. There are exception of course such as pharmaceuticals and medical devices. In most countries, the sector is dominated by few homegrown companies and backed by domestic investors who have managed to keep a strong grip on their local markets. But that is about to change.
Healthcare investments in the U.S. has taught us about the undeniable strengths of the sector with high valuations that have defied economic cycles. The globalization of healthcare will be buoyed by a more fluid technology and business model transfers from the U.S. to the rest of the world. Success stories in the U.S. from deploying advanced digital health technologies, to the latest clinical discoveries, are now being replicated by many countries. Combined with factors such as aging population, the increasing wealth in emerging markets and the rapid trend toward healthcare consumerism, the world will see a new paradigm in which global financial and strategic players will increasingly participate alongside domestic ones.
Some of the key areas for new international investments include:
Europe will present attractive opportunities in the hospital infrastructure space and clinical applications – For the longest time, the U.S./European consulting and system integrators made a good living by prolonging the life span of the legacy systems. That is slowly changing as evidenced by the acquisition of Advanced Computer Software, a UK healthcare services software company by Vista Equity (U.S.) and the purchase of Siemens Healthcare by Cerner (U.S.). Both buyers are bringing the battle tested approaches learnt in the U.S. to wring out system inefficiencies in Europe.
There is room for platform plays in Europe – Cinven, one of the most respected global PE firms, has spent over $3.0 billion buying some of the largest medical testing laboratories in Germany and France taking a page out of the successful consolidation plays by American LabCorp and Quest Diagnostics. We see similar platform plays in the post acute / senior nursing facilities sector, eye and dental clinics as well as hospitals. Many of these platforms plays often start in Western Europe and expand into Central and Eastern European regions.
China will dominate the Asian investment activities but it may be slim picking for non-Chinese investors – Several factors are at play here. It is estimated that by 2020 China will have 480 million people over the age 60. The government has put healthcare reform as one of its top priorities and intends to continue to liberalize the private sector activities. We foresee big opportunities in the country ranging from digital health to infrastructure projects such as the build out of large private hospitals and clinics. Probably the most important factor that bodes well for the country is its ability to quickly adopt and embrace technological change. A big hurdle though is the bureaucracy; a mindset that is not always welcoming. Aggressive entry into the healthcare market by the big internet behemoths, Tencent, Baidu and Alibaba does not help matters either as it crowds out the foreign firms. These deep pocketed investors have backed many healthcare companies including China’s version of ZocDoc (scheduling), Merge (imaging), and Teladoc (e visits).
India will be a huge opportunity with plenty of room for non-Indian investors – The problem in India is not about aging but its sheer scope. According to a UN report, India’s population will exceed that of China by 2022. The sizable unmet demand for healthcare is massive and there does not appear to be sufficient indigenous funding; creating a favorable environment for global healthcare investors. As a matter of fact firms such as Advent International, Carlyle and TPG have been able to make successful investments in the country in sectors ranging from teaching hospitals to specialty care, and labs; again following similar investment thesis that have played out successfully in the U.S.
History has shown us that technology can travel borders and cultures seamlessly and with ease. Healthcare technology should be no exception as long as governments don’t get in the way. Let’s remain optimistic and do our part in advancing the cause.
Read our the May 2016 M&A H.I.T. Market Update HERE