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Analysis: Healthcare buyouts boom in Asia

Bain & Company’s seventh Global Healthcare Private Equity and Corporate M&A Report shows that Asia Pacific deals last year surged to their highest levels since 2001.

It was a banner year for healthcare buyouts in Asia Pacific, with total disclosed deal value surging to US$7.2 billion, more than two times the 2016 level. Deal count rose to 61 from 52 in 2016. Five of those deals were in the sweet spot for large PE funds (US$0.5 billion-US$5 billion), compared with just one such transaction in 2016. Investors, both those domiciled in the region and those based elsewhere, invested in front of demographic and macroeconomic tailwinds, supported by loosening regulations in some markets.

The hottest sectors were biopharma and medtech, which together comprised 64% of deal value and 60% of deal count, with transactions in both developed markets, such as Australia and South Korea, and emerging markets, such as China and India. In a major biopharma deal, Carlyle Asia and Pacifi c Equity Partners acquired iNova Pharmaceuticals, an Australian company that makes both prescription and over-the-counter (OTC) products, for US$930 million. (Australia remained an active market; three of the top six Asia Pacific deals involved an Australian acquirer or target.) In medtech, a consortium of Chinese investors acquired a stake in Shanghai United Imaging Healthcare, a leading Chinese medical equipment and IT solutions provider.

Investors were also active in the provider sector, especially in specialty care formats. Australian-based KKR acquired Laser Clinics Australia, a retail chain of more than 80 hair removal and cosmetic clinics.

Many large global investors are showing continued interest in the Asia Pacific growth story. For example, Bain Capital invested about US$800 million to take a controlling stake in Hugel, a manufacturer of botulinum toxin. The trend continued into 2018; in January, European fund Permira bought I-Med, an Australian diagnostic imaging company, from EQT.

In China, PE investors took advantage of new regulations promoting the restructuring of the distributor system for drugs and devices. The rules, which aim to simplify the system by eliminating multiple layers of intermediaries and replacing them with just two invoices, have put many assets into play. For example, in a deal that attracted interest from both PE funds and corporate buyers, US-based Cardinal Health divested its Chinese distribution business, ultimately selling it to Shanghai Pharma, one of China’s largest pharmaceutical distributors.

As the Chinese government takes measures to encourage the development of the country’s healthcare infrastructure as part of the Healthy China 2030 effort, Chinese investors are looking abroad to Australia, Europe and the US, seeking category-leading platforms that have the potential to expand in China as well as in their home markets. For example, Chinese medtech company Beijing Wandong Medical Technology and PE fund Shanghai Yunfeng Xinchuang Investment Management collaborated with other investors to acquire Italian medical imaging company Esaote both to capitalise on opportunities in Europe and bring sophisticated imaging technology to China. Investment by China-domiciled PE funds in targets outside China spiked in 2016 and 2017, according to an analysis conducted by Bain.

In many cross-border deals, the Chinese funds teamed up with international funds or corporate players to further augment local market expertise and access. Chinese fund Hillhouse Capital partnered with American fund Clayton, Dubilier & Rice (CD&R) in the US$800 million acquisition of US-based Carestream Health’s digital dental business. In another cross-border partnership, China’s Pagoda Investment teamed up with Goldman Sachs Principal Investment Area and the Australian state pension fund Queensland Investment Corporation (QIC) to buy Sydney-based cancer care provider Icon Group from Quadrant Private Equity for a reported US$740 million.

Across Asia Pacific, not just in China, funds are increasingly banding together in consortiums, often across borders. Deal sizes, while still relatively small, are growing. Since 2014, the average size of healthcare PE buyouts in Asia Pacific has increased by 50%, from nearly US$80 million to nearly US$120 million, and funds are forming transnational partnerships to bring together capital and local capabilities. Eager to be a part of these cross-border consortium deals, Asian PE investors have channelled more resources into healthcare. Among all the dollars Asian PE funds have raised for new investments, the share raised by funds with a healthcare focus has more than tripled over the past decade.

Throughout Asia Pacific, exit activity in 2017 remained on par with previous years, with funds selling assets to a mix of other financial investors and corporate players across developed and developing markets. In addition, US-based funds engaging in exits found willing buyers among Asian corporates. For example, North American investor RoundTable Healthcare Partners sold Argon Medical Devices, a US-based medical device company, to Chinese medical group Shandong Weigao.

Bain expects investor activity in Asia Pacific to remain robust in 2018, with funds continuing to team up with other financial investors and corporate buyers. The cross-border trend is likely to intensify as Asian investors increasingly eye targets outside the region. Along with ongoing interest in the traditionally strong pharma and provider sectors, the market may see opportunistic medtech assets come onto the market. Favourable demographic and regulatory trends will continue to fuel interest in this growing, dynamic region, as the more than 50 funds active in Asia Pacific seek out new ways to deploy the large amount of dry powder they raised in 2017.

Posted on: 25/04/2018 UTC+08:00


News

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