Investments decline to $144 million from $1.6 billion in 2010.
Is healthcare, once a hot destination for private equity investments, losing charm? The statistics say so, with healthcare-dedicated PE funds struggling to find deals.
In India, there are 41 private equity/venture capital funds floated with a focus on healthcare (and some other sectors such as education). Healthcare investments through this route touched a mere $144 million through 16 deals till September this calendar year, against 39 deals worth $1.6 billion in 2010. There were 34 deals worth $290 mn in 2009.
Of the three domestic funds and two international funds exclusively for healthcare investments, the investment so far has been $54 mn in the segment. The $200-mn Asian Healthcare Fund (2010), the $50-mn Spring Healthcare (2009) and Fulcrum Venture India have invested $45 mn so far in India. The $2-bn MPM Capital (1996) and $5-bn OrbiMed Advisors (1989), with a focus on India, have invested a mere $30 mn.
REASONS
Abhishek Sharma, head-life sciences, Mape Advisory, said, “There is a large mismatch of PE investments in the pharma and healthcare space. The branded generics space, which is well liked by a large set of PE funds, doesn’t need funding to expand; these are largely positive cash flow companies. Additionally, they face competition from potential buyers due to several mergers and acquisitions. Any play on domestic consumption also attracts attention from broad sector-agnostic funds; hence, healthcare-only funds lose their advantage.”
Shiraz Bugwadia, managing director, O3 Capital, said, “If the investee company sees no value add, then the dedicated fund is no different than any other PE fund doling out capital. Dedicated funds will do better when it comes to early stage or VC-like deals, where the dedicated fund’s expertise can be used to scale the investee company.”
Asian Healthcare Fund Ltd, launched by Dabur Group chairman Anand Burman and former Dabur Pharma CEO Ajay Kumar Vij, with a corpus of $200 million in 2010, made a single investment of $20 mn in Diwan Chand Medical Services last year.
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Vij says though healthcare has caught the attention of investment communities, a few factors are playing spoilsport.
He said, “Unrealistic valuation expectations, dearth of seasoned managers, lengthy gestation periods and lack of proper exit plans are the major concerns.”
Milestone Religare, a 50:50 joint venture between Milestone Capital and Religare launched a Rs 400-crore fund with focus on healthcare and education. It has invested in Healthcare Global Enterprises (2010) and Krishna Institute of Medical Sciences (2009).
"Ability to find good quality healthcare companies of scale (above Rs 50 crore in sales) and low return on capital employed for heavy sub-segments like hospitals are the concerns," Bugwadia said.
Rajiv Maliwal, chairman, Spring Healthcare, echoes the view. He said, "Finding a larger deal in the range of Rs 200-300 crore is the main hurdle in front of healthcare funds in India. Though investment size would be smaller, new healthcare facilities coming up at tier-II and III cities would bring more opportunities.
| MAJOR PE DEALS IN 2011 | ||
| Target | Buyer | Deal Value ($mn) |
| Integrated Health | Halcyon Group | 44 |
| Super Religare Labs | Avigo, Spring Healthcare | 33.7 |
| Healthcare Global | Premjiinvest, India-Build-Out | 30 |
| Vaatsalya Healthcare | Seedfund, Aquarius | 10 |
| Source: VCCedge | ||
Says Sharma of Mape: “There are several contract manufacturing companies which are a play on India’s low-cost advantage which haven’t got much attention in the recent past, despite several deals in this space and attractive valuations.”
NEW DIRECTIONS
Deviating from investing in typical pharmaceutical companies, PE firms are exploring new areas in healthcare industry.
Singapore-based Aquarius India Fund invested in Vaatsalya Healthcare, which provides affordable healthcare in semi-urban and rural India.
Recently, Glocal Healthcare System, a lowcost hospital chain, raised its first round of investment from Sequoia Capital.
Kids Clinic India Pvt Ltd, which provides maternity and infant care under the brand Cloud Nine, raised Rs 45 crore from Matrix Partners.
According to Vij, the areas of speciality healthcare delivery (ophthalmology and diabetes centres, day-care surgery, physical therapy centres, oncology and fertility centres), medical devices and equipments, ancillary services (healthcare IT, nursing care, physical therapy care, insurance) and wellness have the potential to attract PE/VC investments.
Early this year, Halcyon Finance and Capital Advisors acquired hospital management services firm Integrated Health and Healthcare Services India for $44.4 mn.
The latter is in the business of developing & redeveloping, managing and operating healthcare facilities in India. Chennai-based Vasan Eye Care Hospitals is planning to raise $100 mn of PE funding.
"Healthcare-only funds have created a niche for themselves by evaluating healthcare deals that require a deep understanding of the space. What is expected to happen is that healthcare funds get more focused on opportunities that require a detailed in-depth understanding of the sector," said Sharma.