Blog: The Buyout Board | 31 March 2017

A Chinese healthcare boom

Presenting a tremendous potential for growth fueled by domestic demographic and economic forces, China's healthcare industry has attracted notable PE investments in recent years. And with some commentators projecting that China's healthcare industry may be as large as US$1tn by 2020, this sector continues to hold a firm position on investors' radars.

Rising income levels, an ageing population and favorable government policies to support growth in the domestic healthcare sector have all contributed towards the increasing demand for healthcare in China. Against this backdrop, PE funds are investing heavily into China's healthcare industry. Notable deals in recent years have included the following: 

1. US$3.2 billion privatization of Wuxi Pharmatech, a pharmaceutical, biotechnology and medical device research and development services company, by a consortium of investors led by Hillhouse Capital and Ally Bridge Group.
2. US$394 million financing led by Hillhouse Capital and Goldman Sachs into GuaHao.com, a Hangzhou-based online healthcare service provider.
3. US$260 million acquisition by a consortium of PE investors led by Future Industry Investment Fund (a private equity fund managed by SDIC Fund Management Corporation Limited) of a stake in Innovent Biologics, Inc., a China-based manufacturer of monoclonal antibodies and other biopharmaceuticals.
4. US$250 million acquisition by Temasek of a 50% stake in Columbia China, an operator of orthopaedic hospitals, multi-specialty clinics and senior living facilities in Shanghai and Beijing.
5. US$150 million acquisition by Bain Capital of a 90% stake in Asia Pacific Medical Group, a company engaged in operating hospitals and healthcare clinics in China (a deal in which Hogan Lovells acted for Cathaya Capital, one of two existing investors).

China's plummeting fertility rates and the longer lifespans of its citizens are typical of countries entering later stages of demographic development. However, the One Child Policy (introduced in 1979 and phased out in 2015) has made a unique contribution to China's ageing population: the policy has created an entire generation of single-child couples that would typically take care of grandparents from both sides of the family. According to the World Health Organisation, China’s population of those who are aged 60 or older is set for a 90% rise to 240 million by 2020; the total fertility rate per woman has decreased from 6.11 in 1950 to 1.66 in 2015; and average life expectancy has risen from 44.6 years in 1950 to 75.3 years in 2015 (and is expected to be 80 years by 2050).  

These statistics suggest that, in the near future, China will transition into having a relatively small working population that is heavily relied upon by a large elderly/retired population. This is expected to be accompanied by a shift of focus by the healthcare industry from maternal, child and communicable diseases to chronic diseases (often relating to age) and general healthcare. Such sociological factors and the resulting significant increase in demand for healthcare products and services have, in turn, given momentum to deal-making by PE and other investment in the sector.

Judging from the volume of healthcare-related investments that are flowing into China and the level of interest from PE investors in this sector at present, the opportunities and deal activity in China's healthcare industry are likely to remain strong in the foreseeable future.