In what may turn out to be a shot in the arm for the beleaguered healthcare sector, which struggled to find private equity (PE) investments in 2011, the first quarter of calendar 2012 has already clocked in PE investments worth $389.09 million.
Healthcare and pharma during calendar 2011 scraped in merely $378.84 million PE investments. For a sector that has historically been marred by few exits, long gestation, low returns, and, in some cases, distress sales like Warburg Pincus exiting Max India on a par last June, this may just well be what the doctor ordered for the sector.
Darius Pandole, partner, New Silk Route Advisors, said that globally healthcare has been an important destination for PE investing.
?Given the potential, development infrastructure and investment opportunity that the sector holds, it is not surprising that India, too, is following the global investment trail in the ever-promising sector banking on the consumption story,? Pandole said.
Globally healthcare saw exceptional growth. As per the ?Global Healthcare Private Equity Report 2012? by Bain & Company, the value of global healthcare PE deals doubled from approximately $15 billion in 2010 to about $30 billion in 2011.
This boosted healthcare?s relative importance, with the sector representing 15% of total global PE investment activity and comprising 65% of the investment value. The report also affirms the great deal of investor interest in healthcare in emerging economies, particularly in Brazil, China, India and Eastern Europe.
Mayank Rastogi, partner, private equity and transaction advisory services, Ernst & Young, said that some six deals in the space are already in the works. ?There is a great investment interest in specialised, research-based, budget segments especially in the regional market,? Rastogi said.
March 2012 witnessed one of the largest PE investments in the Indian healthcare industry when government of Singapore Investment Corp invested $100 million in Vasan Healthcare. Similarly, in February, IDFC Project Equity invested $38.6 million in Pune-based Sahyadri Hospitals, providing an exit to ICICI Venture that had invested in the hospital chain in 2008.
Pandole also added that issues like high upfront investments and long gestation periods, burgeoning real estate costs and growing manpower shortages will compel the sector to turn to innovative business models.
And interestingly, to keep abreast with the needs, the healthcare space is already evolving with innovative investment and management models.
Consider this: In February 2012 turnaround PE specialist Halcyon Finance and Capital Advisors acquired management and development rights for Delhi-based 700-bed super-speciality Guru Harkishan Hospital for R375 crore to nurse the city hospital back to health. Halcyon inked the deal through its healthcare vertical Radiant Life Care, making it the second redeveloping, managing and operating healthcare contract bagged by the investor. The first one being West Delhi-based Dr BL Kapur Memorial Hospital, a 700-bed facility, for which Halcyon paid R350 crore in early 2011.
?We have always looked at businesses which are essentially asset rich with a latent value to be unlocked. Also, anything that is akin to high degree of growth because it?s a part of an emerging sector and emerging market place is always attractive. And health is definitely one of the more prominent sectors going forward in terms of growth potential. If you have 20% plus growth in a sector, it makes little sense once you have learned the sector to exit it entirely, unless the growth opportunity starts petering out. Over the next 10 years we don?t think growth will peter out,? Abhay Soi, managing director, Halcyon, said.
Mohanjit Jolly, MD of Draper Fisher Jurvetson, India, is also betting big on the healthcare space in both physical infrastructure, as well as technology enablement.
?There is quite a bit happening on the consumer technology side of healthcare, especially around leveraging mobility and being able to deliver information or have the end user interact with medical professionals remotely, and we are looking at this space seriously,? Jolly said.