HBI Deals+Insights / M&A/IPOs

Malaysia emerges as a preferred hub for healthcare PE investments

The Southeast Asian country Malaysia has recently witnessed a surge in private healthcare investments. This is particularly evident in the country’s top for-profit hospital provider IHH Healthcare’s latest acquisition of Island Hospital, a 600-bed private facility in Penang, Malaysia, for $1.18 billion from the private equity (PE) firm Affinity Equity Partners.

Click here to read HBI’s coverage of the news. HBI has also reported on stakeholders in IHH Healthcare strengthening their position in the provider.

In 2023, Southeast Asia saw 22 healthcare deals worth $3.9 billion, making up 36% of the total PE investments, according to the global accounting and consultancy firm EY. 

PE firms like TPG Capital (US), CVC Capital Partners (Luxembourg), and Affinity Equity Partners (Hong Kong) have shown strong interest in Malaysia. Top for-profit hospitals are expanding both domestically and internationally, drawing PE investment for scaling opportunities.

Elaine Cheah, Head of Deal Advisory at KPMG Malaysia (another accounting and consulting firm), told HBI that growth in Malaysia’s healthcare sector is driven by rising income per capita and an ageing population, which is increasing demand for quality care.

Cheah noted that foreign PE firms are more focused on large-scale deals, as domestic firms typically manage smaller assets under management (AUM).

“Healthcare requires large investments, and domestic PE lacks the scale for such ventures. Foreign PE firms, with healthcare presence in other markets, can leverage their experience in Malaysia. Meanwhile, domestic PE focuses on opportunities in smaller community hospitals and pharmacies, where investment sizes are smaller compared to large tertiary hospitals and pharmacy chains,” he said.

Sector ripe for healthcare PE investments

Commenting on opportunities for PE investments in Malaysia’s healthcare sector, Cheah highlighted that despite recent market consolidations, such as international private healthcare company Columbia Asia’s acquisition of Ramsay Sime Darby Health Care (a joint venture between Australia’s multinational hospital network Ramsay Health Care and Malaysian conglomerate Sime Darby), and IHH Healthcare’s purchase of Island Hospital, promising prospects remain.

“In the hospital subsector, several small to mid-sized hospitals such as Thomson Hospital and KMI Healthcare remain attractive. The pharmacy space is also highly fragmented, with no single dominant player, providing ample room for consolidation. Additionally, the healthcare sector’s need for significant financing for long-term investments and capital expenditures presents opportunities for PE to tap into this growing market.”

Cheah emphasised that PE investors must conduct comprehensive due diligence, as not all private healthcare companies operate similarly. 

“Comprehensive due diligence should be performed, as not all companies within the private healthcare sector will behave the same. A thorough commercial due diligence is necessary to understand the market that a particular target is operating, as well as external drivers and emerging trends within the market, to understand the growth outlook. In the increasingly competitive bid environment, investors should consider Value Creation opportunities for potential value uplift, to make the best capital allocation decisions. Proper tax advisory should be sought after as well to understand the tax implication to the deal thesis, more so for PE which will require an exit plan in the future.”

Public-Private Partnerships (PPP) in healthcare

With Malaysia facing significant public healthcare challenges, innovative solutions are needed, and private healthcare providers can play a crucial role through PPPs. The government actively encourages private investment in healthcare infrastructure and services through these partnerships, creating new avenues for PE firms to invest in hospitals, clinics, diagnostics, and other healthcare sectors. 

According to PwC Malaysia (another accounting and consulting firm), PPPs can effectively address some of Malaysia’s critical healthcare challenges while improving efficiency, accessibility, and quality of care. “A successful PPP model ensures that partners are incentivised to act in the best interest of the collaboration. This involves establishing strong governance and financial incentives to foster synergies and integrate resources between public and private healthcare providers, ultimately delivering value-based care in a cost-effective manner.”

Favourable regulatory environment for healthcare M&A in Malaysia

The Malaysian government has prioritised healthcare as a key investment area in the 11th Malaysia Plan, aiming to improve services for underserved populations, enhance system efficiency, and boost collaboration with the private sector.

“The regulatory landscape is highly supportive of M&A. The Healthcare sector is identified as a key sector for investment in the 11th Malaysia Plan. Majority stake in hospitals are also allowed for foreign ownership, with fewer restrictions in pharmaceuticals and medical devices. The sector is also well-governed by various bodies, including the Ministry of Health, Medical Device Authority, National Pharmaceutical Regulatory Agency, etc., giving the sector a clear legal framework and transparency to ensure healthcare services meet the required standards,” Cheah said.

Malaysia: a favoured destination for medical tourism

Malaysia has developed a reputation as a top medical tourism destination, offering high-quality services at lower costs and attracting international patients, particularly from the Middle East. 

Despite competition from Thailand and Singapore, the sector provides stable, long-term growth, driven by non-discretionary healthcare spending and the depreciation of the Malaysian ringgit (MYR) against the US dollar, as highlighted by Cheah.

Malaysia excels in specialties such as cardiology, oncology, and fertility, with institutions like the National Heart Institute setting global benchmarks. In 2023, the medical tourism sector contributed MYR 2.23 billion (~$491 million) to the economy.

To further support growth, the Malaysian government launched the Flagship Medical Tourism Hospital Programme, offering incentives to select hospitals, including those backed by private equity.

We would welcome your thoughts on this story. Email your views to Rakshitha Narasimhan or call 0207 183 3779.