Amid a surge in healthcare deals globally last year including those backed by private equity, Asia Pacific’s disclosed deal value surged to $7.2 billion, with 61 deals in 2017 as compared to 52 in 2016, the highest level since 2001 and the momentum is expected to continue this year, a report from Bain & Company has said.
Healthcare space has been seen as a compelling investment theme given the aging population, rising chronic diseases, innovation of drugs and a fragmented delivery system open to disruption.
The trend for higher number of deals in the space is expected to continue in Asia-Pacific as investor activity is expected to remain robust in 2018, said Bain and Company’s seventh Global Healthcare Private Equity and Corporate M&A Report released on Thursday.
Further, the industry may see opportunistic medtech assets come onto the market, the report said. “Firms across the sector are feeling the effects of several major disruptive forces, many of which have already transformed other industries,” said Nirad Jain, partner and co-leader of Bain’s Healthcare Private Equity team.
He added that the region is just starting to see the ramifications of these trends, which will have a long tail across the industry for years to come and forward-looking companies are reviewing their investment strategies now to capitalize on the opportunities and mitigate the risks of disruption.
Meanwhile, a significant trend seen last year was that investment funds were increasingly banding together in consortiums, often across borders and eager to be a part of these cross-border consortium deals and Asian Private Equity (PE) investors have channeled more resources into healthcare. Moreover, the deal sizes in the healthcare space in the region, while still relatively small, are growing, it noted
“Since 2014, the average size of healthcare PE buyouts in Asia-Pacific has increased by 50 per cent, from nearly $80 million to nearly $120 million, and funds are forming transnational partnerships to bring together capital and local capabilities,” it said.
Five of the 61 transactions done in healthcare space in the region were in the sweet spot for large PE funds ($0.5 billion–$5 billion), compared with just one such transaction in 2016.
Asian investors eyeing healthcare target outside
The funds are also set to continue to team up with other financial investors and corporate buyers with Asian investors increasingly to eye targets outside the region, it said.
The report also noted that cross-border activity flourished as Chinese investors expanded their outbound M&A focus from Australia to also include the US and Europe.
Recently among a series of Chinese healthcare investment beyond Asia with Alibaba’s involvement were China’s iKang Healthcare Group that entered into a merger agreement with the special purpose vehicle floated by affiliates of Yunfeng Capital and Alibaba Group and Alibaba-backed genetic testing and digital health company Prenetics’ acquisition of UK-based consumer genetic testing firm DNAFit.
Among others were Chinese orthopaedic implant company AK Medical Holdings acquisition of UK’s JRI Orthopaedics firm. Earlier this year British startup Mdepoda struck $143 million worth of deals in China with firms including Tencent.
Unfazed by valuations, deals to continue into 2018
Globally, healthcare private equity market across the world saw heightened activity in 2017, with the total disclosed deal value reaching $42.6 billion, the highest since 2007. The top 10 deals, with values ranging from $1.3 billion to $5.0 billion, accounted for more than half of that, while deal count increased to 265 from 206 the year before.
“Healthcare PE investors drove stellar growth this year, despite intense competition from generalist funds, tech-focused funds, institutional investors and corporate acquirers,” said Kara Murphy, partner and co-leader of the firm’s Healthcare Private Equity team.
However, to keep pace with rising valuations, funds had to get creative with their deal making, taking public companies private and buying businesses from companies ready to divest units that no longer fit with their strategies, he said. Globally, the four largest deals of 2017, collectively valued at more than $15 billion, involved public-to-private transactions, and PE funds were buyers in two corporate carve-outs.
“Despite valuations at or near record highs, Bain expects a continued high level of M&A activity in 2018 as healthcare companies continue to look to M&A as a vital component of their growth strategy. We expect the trends that drove deal activity in 2017 to continue…,” the report said.