And yet, consider the flurry of deals of late. On July 19th TPG and the Carlyle Group, two American private-equity firms, won a takeover battle for Healthscope, an Australian hospital chain, with a bid of $1.7 billion. In doing so, they edged out a bid by Kohlberg Kravis Roberts (KKR), another big American private-equity firm. Healthscope is Australias second-biggest private hospital firm, but it also has operations in New Zealand and south-east Asia.
Another battle is brewing in Singapore. In March TPG sold its minority stake in Parkway Holdings, a chain operating 16 hospitals in half a dozen Asian countries, for $685 m. The buyer was Fortis Healthcare, an ambitious Indian chain. This upset Khazanah, a Malaysian sovereign-wealth fund that already held a minority stake. In May it made an offer of roughly $835m for a majority stake. On July 1st Fortis put in a bid for all outstanding shares, worth perhaps $2.3 billion. A final verdict is expected by the end of this month.
All this comes on the heels of several big hospital deals in America. In June Vanguard Health Systems, which is owned by the Blackstone Group, a big private-equity outfit, completed its acquisition of the Detroit Medical Centres hospitals for $417m. In March Cerberus Capital Management announced its $830m acquisition of Caritas Christi, a non-profit chain of hospitals based in Boston.
Two big trends, one global and one local, explain this frenzyand suggest that more deals are to come. The global trend is that demand for high-quality health care is exploding, as rich countries age and developing countries grow more affluent. The rub, notes Gary Ahlquist of Booz & Company, a consultancy, is that the supply of top-notch hospitals is rising only slowly.
This mismatch has set off a scramble by investors for high-end hospitals both to cater to local demand and to meet the boom in medical tourisman area in which Parkway was a global pioneer. Rana Mehta of Technopak believes that Fortis, which was started in 2001 by the billionaire brothers behind Ranbaxy, an Indian generics firm, requires a strong brand to help it expand internationally.
The local explanation for the American firms investments in hospitals is Obamacare. Americas new health laws will reduce payments to hospitals while forcing them to invest in expensive information-technology systems, thereby squeezing margins. John Nelson of Moodys, a ratings agency, argues that these reforms will favour large, efficient providers. Many firms will struggle to cope with the trend towards greater technical and regulatory complexity, reckons Nelson. Poorly-managed ones will fail and be swallowed. Investors who make hospitals more efficient, by contrast, will be handsomely rewarded. HCA, a big American hospital chain that was taken private in 2006, paid a dividend in January of $1.75 billion to its investors. Still, as Obamacares reforms bite into domestic margins, returns are likely to diminish and American investors may again head overseas in search of healthier markets. Mehta thinks Africa will be the next frontier. But as the Parkway saga demonstrates, the Yankee raiders will increasingly have to compete with well-financed local rivals.
The Economist Newspaper Limited