The global healthcare market opportunity in the next few years
What does the global healthcare investment landscape look like? Where are the opportunities and how do they differ between Europe and emerging markets? With almost 100 delegates from Asia and dozens from other emerging markets at HBI 2018, our conference this year was global in outlook. Rothschild’s head of Healthcare Services Hedley Goldberg summarised the global financial landscape for healthcare investment while local operators and investors shared where they think the opportunities lie.
Healthcare to benefit from ‘relative attraction’ globally
With global economic growth across all major developed markets and some emerging ones set to decline over the next few years, the continued growth in healthcare expenditure – driven by private pay – and its resistance to economic downturns will see more capital funnelled into the sector, a trend started a few years ago. Goldberg describes the appeal as “relative attraction”, evidenced by healthcare services in the EU being one of the few sectors where valuations for listed groups have consistently grown since the 2008 crisis (retail trade, oil & gas, non-energy minerals, major telecoms and industrial services all fluctuating and growing more slowly).
In the EU, Rothschild data shows a steady increase in the number of healthcare service deals over the last decade, at a time when the number of deals across all sectors has been steadily falling (though the combined value of deals fluctuates). In emerging markets, where listed groups enjoy double the P/E ratio and EBITDA CAGR to Europe, tracking deals is probably harder. Nonetheless, analysts are beginning to incorporate M&A into forecasts for companies with acquisitive growth strategies, like London-listed GCC operator NMC Health, something they never used to do.
Goldberg cites the success stories of French (but now global) nursing home giant Orpea, Brussels-based lab group Eurofins and NMC, who have all carried out steady M&A activity driving growth and outperformed their sector benchmark.
He believes the next few years will see a continued pivot towards healthcare by all types of private equity, the progressive building of outpatient platforms across Europe, and the continued dominance of those listed groups that can execute on M&A alongside organic growth. In emerging markets investors will look to those geographies where emerging state payors promise volumes, local players are inadequate, or the opportunity is just too big to pass up (or all three!): China, India, the UAE, Saudi Arabia, Nigeria and others.
The types of opportunities differ vastly between Europe and emerging markets
In Europe, long-term care and outpatient including dentistry are all the rage in the investment community. But in most emerging markets, these areas are dominated by mom-and-pops operating in an unregulated environment leading capital to shy away, or the segment simply doesn’t exist in any institutionalised form (nursing homes). There are exceptions, with Indian primary care chain HealthSpring raising funds and growing a national network. Dental chains have emerged there too but generally they have yet to prove profitable.
Elderly residential care in China, Brazil, the Middle East and India were all presented as massive opportunities with little international operator presence. But the jury is still out on whether non-specialised domiciliary homecare can really work as a business, anywhere. The consolidation of labs is also a hotly discussed topic in emerging markets and we heard of a large deal about to go down in Africa.
State payors in emerging markets
Speakers saw these as a mixed bag – but it was a major talking point. One thought Vietnam had been a disaster while another was optimistic about India’s chances to implement ‘Modicare’. NMC CIO Hani Buttikhi cites the UAE government’s continuing aggressive rollout of mandatory health insurance across its emirates as a huge factor behind the group’s success. Oman just implemented similar changes and Saudi Arabia is the next big one everyone is watching.
South Africa is also taking steps to implement single-payor health insurance along with Indonesia, India and some other African countries including Gabon. The need to adapt your business model for the higher volumes and lower margins was emphasised. But all agreed that governments will generally be reluctant to increase their spending significantly on healthcare and so the slack, on provision and pay, will be picked up by the private sector.
Click here to see the presentation by Hedley Goldberg gave at HBI 2018.
Click here to read a presentation by Emmanuel Masson, Orpea, about internationalising care given at HBI 2018.
Click here to see a presentation by Dr Penelope Dash, McKinsey& Company, on the future of healthcare, given at HBI 2018.
Click here to read the presentation “Building a quality agenda across a global healthcare chain” by Dr Andy Jones, Ramsay Healthcare UK, given at HBI 2018.
We would welcome your thoughts on this story. Email your views to Cameron Murray or call 0207 183 3779.
