Healthy holidays: PE and medical tourism
Asia’s medical tourism sector is growing rapidly as visitors flock east for cheap surgical procedures. How big is the opportunity for private equity and where can it be found?
Book a stay at one of the Apax Partners-backed Apollo Hospitals as a tourist and you not only elect to receive surgery at a fraction of Western prices, but you also have your plane tickets, insurance and airport pick-up scheduled at the same time.
Apollo is not the only Indian hospital chain offering a premier service for foreign guests. Fortis Healthcare, which is backed by Government of Singapore Investment Corp. (GIC), even offers currency exchange, serviced apartments and local sightseeing tours.
"Over the last five years medical tourism has been an important aspect of this business," says Nikhil Marathe, a partner with Apax in Mumbai, adding that Indian healthcare companies increasingly see the commercial sense in reaching out to international clients. "While it is not the most important thing we do, Apollo does try to target patients from outside India, primarily because the pricing is better while the quality of healthcare is in line with global standards."
In recent months, the country has seen a flurry of private equity investment in private hospitals and clinics that are trying to position themselves as healthcare providers for travelers in search of a bargain. The question is how significant is this opportunity and how is it likely to develop?
It is difficult to pinpoint the number of PE investments in the medical tourism space because portfolio companies are normally defined under the wider umbrella of healthcare. What is known is that India's medical tourism industry is growing at 30% per year and is projected to be worth $2 billion by 2015. On a global basis, the industry is expected to reach as much as $100 billion by the end of this year.
Target market
Since paying $100 million for an 11% stake in Apollo in 2007, Apax has overseen an increase in the company's exposure to medical tourism through the expansion of its international patient centers in Chennai and Hyderabad. Last week, the firm sold half its stake in Apollo to Oppenheimer Funds for about INR5.23 billion ($96.8 million).
It is not the only private equity firm employing such a strategy. In January, Olympus Capital took a minority stake in DM healthcare for $100 million. The company, already a major healthcare player in the Middle East, is pursuing rapid expansion in India, and this includes promoting the city of Kochi as a medical tourism destination.
"The segment is currently worth around $650 million in India based on the data we have. It is growing nicely and it makes a lot of sense for certain hospitals, depending on their geography and specialization," Gaurav Malik, Olympus managing director and head of India, tells AVCJ.
However, he stresses that no healthcare company can build a business based on medical tourism alone, describing it as "the cherry on top of any good hospital business in a good location." The key factor is that India has nothing that compares to Bumrungrad Hospital in Bangkok, where revenues are entirely driven by medical tourism.
Thailand is well established as a medical tourism hotspot. Out of the 19 million visitors to the country in 2011, an estimated 500,000 traveled specifically for medical care. The industry is growing at an annual rate of 16% and is on course to be worth THB100 billion ($3.3 billion) by 2015.
As early as 2005, Singapore sovereign wealth fund Temasek Holdings bought a minority stake in Bumrungrad. The fund exited in 2011, without disclosing the return on its investment. However, a more recent by exit The Abraaj Group from Vejthani Hospital delivered a 3x money multiple, suggesting that Thai medical tourism is indeed a PE money spinner. The investment had been made in 2009 by Aureos Southeast Asia Fund, a vehicle run by Aureos Capital until its acquisition by Abraaj last year. The fund injected THB200 million into the hospital alongside GSB Private Funds, a vehicle set up by Thailand's Government Savings Bank and managed by ING.
"Vejthani was resilient during the downturn in 2009 and was well positioned to capture an increasing share of the growing medical tourism trade where Thailand has been a large beneficiary," Srisant Chitvaranund, a partner with Abraaj, told AVCJ in December.
Price incentives
Given that price of treatment abroad is the main incentive for medical tourists, India still has a clear advantage over other countries. A heart bypass, for example, costs $80,000-$130,000 in the US, compared to $16,000 in Singapore, $11,000 in Thailand and as little as $9,000 in India.
By this token, the reason India's medical tourism space has not yet become a defining feature of healthcare as a whole is not a reflection of insufficient demand. Rather, it is due to the wealth of opportunities being created locally by the burgeoning middle class.
"It will become more of a factor but the reality is that domestic demand in India is just so strong that even if the number of medical tourists goes up it will still be a small percentage of the total number of patients," says Ben Mathias, executive director at New Enterprise Associates, which last year invested in INR3 billion with Goldman Sachs in India Nova Medical Centers.
Asanka Rodrigo, a director with Actis in Mumbai, reflects that the appeal of medical tourism for many companies is the cache it brings to its brand. "The message is that these hospitals are able provide care at a world-class level and can therefore serve the global medical tourism market," he says. Actis' Sri Lankan portfolio company Asiri Central Hospitals is among those to have benefited from this perception.
The medical tourism story is significant but it is unclear to what extent it can shape the growth of Asia's healthcare sector as whole. Rodrigo echoes Malik's cherry-on-the-top observation, saying that such services are most likely to augment profits rather than drive them. "The domestic growth story is there or the next 20 years; the question is if you want to grow faster than the domestic market."
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