A strategic look at Asian healthcare M&A. HMi talks to Bain & Co’s Alex Boulton

Global healthcare M&A volumes dropped in 2022, but the long-term underlying drivers remain strong. Hopes are that deal activity will pick up through 2023. Nick Herbert caught up with Bain & Co management consultant Alex Boulton to look at the healthcare M&A landscape in Asia.

In its Global M&A report 2023, Bain reports that the number of strategic healthcare deals declined by more than 30% in 2022 and the average deal size fell by around 15%. Median strategic deal multiples also fell to 15.1x after reaching an all-time high of 20.3x in 2022.

That trend could be on the turn, it says, with fourth quarter megadeals (namely, Johnson & Johnson’s US$16.6bn acquisition of Abiomed in November and Amgen’s US$28bn acquisition of Horizon in December) foreshadowing the possibility of a resumption in deal activity. Pharma companies could lead a rebound in M&A activity as they look to fill the potential growth gap from the US$100bn in patents set to expire by 2030.

‘We’re very bullish on healthcare M&A globally and in the region,’ said Bain partner, Alex Boulton, head of Southeast Asia Healthcare & Life Sciences and Healthcare sector lead for APAC Private Equity group. ‘And fundamentally that’s because healthcare is a sector that, first and foremost, is an attractive one to be in longer term.’

The healthcare sector in Asia, as in the rest of the world, is well insulated from macro shocks and adverse macro events. It’s a sector where many investors have been bagging good returns while for institutional investors, healthcare is attractive for it’s almost infra-like yield. It is such a necessary good.

Investment plans

Asia’s healthcare sector is attracting its fair share of institutional interest, as well as interest from regional firms looking to buy assets in pursuit of their own specific strategic ambitions.

Big institutional investors continue to put money into healthcare, including the big Southeast Asian sovereigns. Boulton highlights two approaches being adopted as a means of building exposure in the region’s healthcare sector.

‘One is to take minority positions in healthcare assets across the region in a PE style play,’ he said. ‘They are looking to realise the beta potential from  investing in the sector.’

Singapore’s sovereign wealth fund, GIC, is one such institutional investor employing a PE style tactic. The other strategy is to build investment platforms.

‘Investor following this approach are acquiring a string of assets with a view to generating a lot of alpha over a longer-term horizon,’ said Boulton.

Temasek’s Sheares Healthcare Group is an example of a firm using a platform building plan. The Singapore government owned global investment company’s specialist healthcare group invests in and provides healthcare delivery services in Asia, with the aim of developing new healthcare delivery models and processes by leveraging innovative technologies and operators.

Its investment focus is on China, India, Vietnam, Malaysia, Indonesia, the Philippines, and in the US. Recently, it has been making news headlines in India as it builds exposure to the country.

At the end of 2022, Sheares increased its profile in India with the acquisition of TPG’s stake in Manipal Hospitals. This year, the Economic Times reported that the group is in advanced discussions to invest INR5bn (US$61m) for a 15%-20% stake in maternity, gynaecology, and paediatric hospital, Cloudnine.

Strategic thinking

There’s also a strategic play at work in Asia. Insurance companies, for example, are visibly vying to take market share in the region.

Last year, AIA and Discovery created their joint venture, Amplify Health, a Pan Asian integrated health technology solutions business. Soon after the JV was established, it was out in the market acquiring Aida Technologies in Singapore in a transaction that supports the firm’s integrated health technology solutions stack and associated IP. Aida uses artificial intelligence (AI) for claims processing.

AIA also acquired MediCard Philippines in 2022, a leading health maintenance organisation (HMO).

More recently it teamed up with WhiteCoat Holdings, a Southeast Asia focused digital health company, to provide end-to-end digital mental healthcare solutions as part of a ‘Think Well’ programme. Think Well is the latest initiative of the partnership (that started in 2019) to co-create the market’s first primary care telehealth service with straight-through insurance claims processing.

Hospital groups are also on the lookout for investment opportunities. The failed attempt by IHH Healthcare to acquire the 50:50 Ramsay Health Care and Sime Darby Asian joint venture, Ramsay Sime Darby Health Care, is one highly public example of the big regional hospital groups looking to increase footprint in a given market and to create synergies with existing assets.

IHH was more successful in its latest strategic venture, however. Investing an undisclosed amount into Intellect, a Singapore-based digital mental health company.

‘There’s also the corporate venture angle,’ said Boulton. ‘Big pharma and medtech are looking at regional startups as a hedge on innovation. They might not be writing big checks but they’re putting money to work and ringing the cash register in terms of Series B rounds and others.’

SwipeRx, for instance, a platform for pharmacies in Southeast Asia, recently raised US$10m as part of a new Series B2 round with Sanofi and Johnson & Johnson notable in appearing among the ranks of investors.

And Novo Holdings, the Copenhagen-based global life sciences investor, has built up exposure to a veritable who’s who of Southeast Asian startups.

‘The other investor sector where we’ve seen quite a lot of interest is conglomerates,’ said Boulton. ‘These companies might not necessarily be deeply embedded in healthcare but are keen to get access to a market with great long-term outlooks – lots of long-term investment opportunity with insulated risk – as part of developing another pillar to their businesses.’

Indonesian conglomerate, Astra, for example, bought shares in Medikaloka Hermina in 2022 and finds itself alongside Novo Holdings as an investor in Halodoc, an Indonesia-based healthtech startup.

Sellers’ market

The return of volatility to the financial and geopolitical landscape has eased some of the pressure on valuations, but by how much that pressure has eased varies from sector to sector and across geographies. But for the best assets: ‘sellers are still looking for top dollar multiples,’ said Boulton.

‘If it’s a good asset, in a sector where you can make great returns with a good degree of insulation, then sellers are looking for fair value. If they don’t get it then they’re willing to hold onto their assets for a bit longer,’ he said.

The healthcare sector remains an attractive draw for a variety of investors employing their own specific strategies. The depth of underlying interest and the weight of cash available to deploy paints a positive outlook for healthcare M&A prospects. Buyers, however, will need to be realistic when it comes to valuation expectations.

Conditions suggest there is little chance of picking up assets at fire sale prices.