McLean Partnership

Is healthcare the new sector of choice for Private Equity firms investing in Emerging Markets?

February 13, 2020

Historically, European based emerging market Private Equity (PE) funds sought to maximise exit revenue by focussing on developed, easily scalable and high-margin sectors; often, Natural Resources, Consumer Goods & Industrials. Whilst these sectors remain a constant in Emerging Market-centric PE portfolio’s, it is no secret within the industry that over the last decade, healthcare as a percentage share of portfolio’s has increased substantially.

 

Why healthcare?

A myriad of explanations can be attributed to increased investment into the healthcare sector. From an Emerging Markets (EM) PE perspective it appears to be a perfect storm of Governmental changes, societal/structural, and investor appetite.

Governments in frontier markets are increasingly beginning to support local private healthcare solutions (often via tax breaks or incentives), as opposed to relying on the aged system of state-run public healthcare, coupled with private healthcare provided by global transnational corporations. They are gradually recognising that finding a local alternative to international suppliers can aid the requirement to provide better, deeper, and cheaper healthcare to a larger and more prosperous population.

Government changes regarding healthcare are, in part, precipitated by the changing nature of Emerging market economies. As their economies mature, rising middle class incomes create increased demand for private healthcare. With greater disposable income, individuals and families can access a higher perceived quality of service, availability of drugs and continuity of care offered by private healthcare operators. This often results in private insurers and clinics prospering, along with the investment case for PE funds.

Investor appetite for the medical market has also grown exponentially. In EMPEA’s 2016 “Global Limited Partners Survey”, respondents ranked healthcare as among the most attractive sectors in which to gain exposure. As highlighted, investment managers continue to see opportunities to address demands for quality and affordable healthcare products. Furthermore, the level of interest in the sector arises from its relative lack of volatility as it becomes more consolidated, organised, and corporate, and can usually negate economic downturns. For individual investors, PE funds operating within the EM healthcare space, are also likely to align with the ever-increasing demand for impact & ESG investing.

 

Human Capital

Throughout 2019, McLean saw a heightened demand in hiring for healthcare portfolio companies at both an executive and non-executive level. Regarding C-suite hiring, demands were usually met by local talent with an intrinsic knowledge of the local market and a history of scaling healthcare companies. Whereas at NED level, we saw an increased appetite for non-execs from European nations who could offer advice or pre-deal due diligence from the angle of a more mature market.

Whether healthcare persists an optimum investment for private capital across frontier markets remains to be seen, but current trends give no indication of it slowing.

 

Henry Agnew works in the Private Equity Practice at The McLean Partnership. For more information or a confidential discussion on how we can help, please contact Henry on 020 3597 6426 or henryagnew@mcleanpartnership.com.