HMi meets… Raj Shah

Raj Shah, co-head of healthcare at Nordic Capital

Raj Shah, co-head of healthcare at Nordic Capital, talks about where he sees value in the European healthcare sector and the challenge of how to deliver quality healthcare in the most cost-effective manner


Nordic Capital is widely recognised as one of the smartest private equity players in Europe with a particularly strong reputation in healthcare. It has generated €4bn (US$4.4bn) revenues in its current healthcare portfolio, made 28 investments and deployed €5.5bn of equity capital to date in the sector.

To name just a few, its current healthcare portfolio includes stakes in private German nursing home operator Alloheim, German ophthalmology group Ober Scharrer, the European Dental Group, British diagnostics company Binding Site and US-based global clinical trial technology company ERT.

Co-head of the healthcare team since 2015 is Raj Shah. A former Goldman Sachs banker, he initially qualified and practised as a cardiac surgeon at Oxford.

Few are better placed to see what is happening in the healthcare sector globally.

Here he talks to HMi about the trends he is seeing and explains Nordic Capital’s investment philosophy.

The following transcript of HMi’s interview with Raj Shah has been edited for brevity and clarity.

HMi The message that comes out of every conference is that healthcare is globalising. How do you address that as a team at Nordic Capital?

RS The globalisation theme has been there for a while and if anything it is accelerating. We see it occurring at different speeds in different subsectors in healthcare.

What I mean by that is that globalisation has been a pretty broad theme for quite some time now in medtech and in pharma. But on the B2C services side, particularly with insurance companies and providers, we still see quite local trends. Even within Europe, those businesses are country-specific. Europeanisation, if I can call it that, might be more of a trend than globalisation, although we are seeing some attempts at doing that.

Look at the way that French-listed care home operator Orpea started as a very French local geographic business, then became pan European and now has operations in South America and in China.

In terms of how we address it, we’ve always been a very internationally focused house. The European and the US markets, obviously, are still the largest healthcare markets especially if you include pharma and medtech. The services side of the market is also very large here, but it is also quite large in Asia.


HMi How do you see the dynamic of deal flow within Europe. Is it mostly consolidation within countries, or is it cross border?

RS It’s the perennial debate, isn’t it? And there is no right answer. If I had to choose, I think that particularly European or multi-country consolidation has to be the long-term aim.

How long it takes to get there and how much effort it will take to achieve that is open to interpretation. But I don’t think that’s something that’s going to stop.

I don’t think you’re going to go back to very local businesses simply because that type of model doesn’t allow people to deliver high-quality services in an efficient manner.

If you see where some of these service businesses trade, they appear to give credit to multi-jurisdictional businesses when they are made to work well.

HMi Your last fund – Fund IX – is €4.3bn. Is that the right size for the opportunities you see?

RS If you look at the addressable market, it is hundreds of billions of dollars in size, even if you look across just Europe and the US. If you look at medtech, or if you look at healthcare IT, those businesses have products which are relevant across boundaries because the relevant regulatory authorities are pan European.

For medtech and for pharma, there is one European standard. The barrier to globalisation or expansion outside the country borders is very different in different subsectors. We have played across that whole market in healthcare since our inception in 1989.

Nordic Capital has done healthcare deals in pharma, in medtech, and also more recent, healthcare service deals like Obersharrer and Alloheim in Germany. If we look at our pipeline, we can justify more capital.

HMi Does really deep sector expertise give you an advantage?

RS This industry started off with generalists, but as every industry gets more and more competitive, you’re looking for sources of differentiation. Where we find our source of differentiation is making sure that we’re utilising our deep sector knowledge in the team.

Being deep in the sector gives us an ecosystem. When we go to international conferences, we’re well known to those executives, and that confers opportunities to us.

HMi You mentioned Obersharrer and Alloheim. The aged care market in Germany remains incredibly fragmented. Do you intend to target that market this year?

RS Germany is a very attractive economy, one of the strongest in Europe. It is where many of the demographic changes that we’re seeing in other parts of Europe, are particularly prevalent. And in terms of aged care, it still remains a fragmented market.

I think that there are consolidation opportunities, not just in aged care, but also in ophthalmology and dentistry too.

HMi Many private equity players investors invest for only three to four years, but you have been invested in Binding Site since 2011. I’m curious about your investment strategy.

RS Our investment horizon is longer than three to four years. Binding Site was a company which came out of the University of Birmingham. Nordic Capital made an early-stage investment on the diagnostic side.

It tracks multiple myeloma which is a condition of the elderly. While it is technically an uncontrolled proliferation of cells it tends not to be a malignant condition with patients living with their disease.

When we looked at that investment, we liked the R&D aspects. We also saw a number of pharmaceutical developments in the pipeline at that time which had the potential to be quite effective at dealing with this condition. And if you have a drug or a product which can help alleviate symptoms, you generally need a diagnostic alongside it. We saw that there was going to be a positive symbiotic relationship between the diagnostic and products that were going to come on-stream in the next five to ten years.

Nordic Capital has held Binding for a long period of time because that business has grown revenue double digits with even stronger EBITDA growth.

In summary, Nordic Capital took a view, invested in the R&D, invested in the business, and then took a longer-term perspective as well.

HMi What do you see as the risks facing the sector?

RS On the pharma side particularly, I think that pricing and reimbursement is a headwind. Although we tend not to see much bipartisan support in the US, drug pricing is the one area where both sides of the aisle have a common view.

The reason why things may be different here is that there are a number of high-priced products which are coming online because big pharma is spending a lot of time on orphan diseases. While they are small parts of the overall spend, they get a disproportionate amount of airtime because it is very striking if you have an orphan disease drug selling for US$300,000 or even more.

Elsewhere in the healthcare sector, is really just how to deliver quality healthcare in the most cost-effective manner. That’s going to be the constant conundrum. To a certain degree, that is where private equity should be able to help. There are risks, but the underlying trends are very strong.