Is the African healthcare market in a bubble?
Healthcare Nova speaks to an investor who believes valuations are set to fall in African healthcare, with too much capital chasing too few deals.
The source, a seasoned expert on healthcare investing in sub-Saharan Africa, says: “Long-term there is a substantial overhang of capital right now with too much of it chasing too few deals in healthcare markets in Africa, and at some point or another there will be a correction. As to when it happens that is anybody’s guess, but I suspect the next three to four years. It may come as recently raised funds are put to work.
“Valuations for deals will have to come down. The ability to make a reasonable return is substantially compromised because the entry multiples to get into a market are so high.”
Abraaj’s recent plight has highlighted the difficulties in investing in poorer countries’ healthcare systems, and some contacts say it could affect the long-term appetite for investment. However, our contact says that several funds have already been raised with a mandate to invest in sub-Sarahan Africa and valuations will continue their upward trend to a breaking point.
Commenting on the double-digit EBITDA valuations for healthcare service companies they are seeing across the region, he adds: “There are a number of businesses being funded where EBITDA is a distant hope. The same sorts of multiples of profits you paid before have become multiples of EBITDA which are now even multiples of revenue. It’s the same situation that’s played itself out in multiple markets around the world and is playing itself out in Africa now.”
We would welcome your thoughts on this story. Email your views to Cameron Murray or call 0207 183 3779.
