Is private equity becoming uninterested in healthcare services?
As a sector more resilient than most to recession, it’s no surprise that private equity and others are interested in getting involved in healthcare services. It also gives a great opportunity for a diversified portfolio as healthcare provision covers such a wide base – pharma, medtech, life sciences and services. And yet despite the economic environment and the relative safety and benefits, it seems that private equity may not be as interested as they could be.
HBI reported that PE firm Remgro partnered with shipping company MSC to acquire South Africa-based multinational hospital group Mediclinic. With the instability in the shipping sector caused by the Suez Canal blockage and rising oil prices, it was no wonder MSC looked for something more stable. But what was surprising was despite a relatively low price compared to the initial bid for Australia-based Ramsay, no other bidders came out of the woodwork. Likewise, Ramsay’s deal with the KKR-led consortium fell apart in the wake of an inferior bid and no competitive offers. Likewise, CVC was the only PE firm interested in consolidating the Greek market, if our sources are to be believed.
Why is this? One reason could be the growth in the sector is consistent, but not strong. One of the largest private healthcare sectors in Europe is Germany, and it boasts all the previously mentioned virtues of the healthcare sector for investors. These virtues also make it, as one analyst told HBI, a market with little opportunity for real growth and consolidation, which isn’t a fantastic opportunity for investors who often prefer to buy and build than acquire slow-growth behemoths.
Compare this to Indian hospital group Care Hospitals, which is currently being bid on by investors such as CVC, Blackstone, and Tamasek and Max Healthcare. With much greater growth in emerging markets and greater opportunities for consolidation, this isn’t really a surprise. PE can acquire the safety of healthcare with added opportunities to scale assets which aren’t available in many larger markets.
There’s also the issue of raising capital and leverage. While PE firms have a lot of dry powder, many of the usual avenues for raising capital or leverage are closed or increasingly difficult to access, not least due to rising inflation and interest rates. Financing through debt is difficult when banks are hesitant to lend.
While there’s still a strong interest in healthcare by PE firms because it’s low risk, there seems to be a hesitation about buying into already developed and consolidated companies. In MEDCs (more developed/industrialised countries) low risk can often mean little opportunity, but in emerging markets the opportunities to build are much more prominent.
We would welcome your thoughts on this story. Email your views to Joe Quiruga or call 0207 183 3779.
