KKR creates China hospital platform

The platform’s first investment is the acquisition of a majority stake in HeTian Hospital Management, which operates two general hospitals and three dialysis centers in Anhui province. The company manages a total of 1,300 beds and is overseeing the construction of a new 500-bed hospital that is expected to be completed by 2020.

SinoCare will support HeTian’s expansion and growth through acquisitions, with a focus on third-and fourth-tier cities where medical resources are scarce and quality healthcare services are lacking. There are fewer than three hospital beds per 1,000 people in cities that rank in China’s fourth tier or below, according to the National Health & Family Planning Commission.

“This is a pivotal time for health care in China given the growing demand for quality medical services and treatments nationwide,” said Paul Yang, Greater China CEO for KKR, in a statement. Fangjun Li, the founder and chairman of HeTian, added that private hospitals are an increasingly important part of the country’s healthcare system due to a shortage of medical professionals and clinics.

Indeed, in recent years the government has eased restrictions on private investment in the space with a view to reducing its own financial burden. PE firms responded with a spate of hospital acquisitions while a handful of investors went so far as to build facilities from scratch. Many of these deals were positioned as cornerstones for consolidation strategies.

Just last week, General Atlantic invested $150 million in Chinese cardiology hospital operator Hong Kong Asia Medical, which explicitly targets patients from the middle classes who pay for treatment through the national health insurance system. The private equity firm said it was ready and willing to assist on M&A as Asia Medical looks to build out its network.

SinoCare is not the first hospital management platform launched by a PE firm. In 2014, Hony Capital established Hospital Corporation of China (HCC), seeded it with two assets, and sought to create a national healthcare services network. HCC went public in 2017 and the private equity firm has since sold several hospitals to the platform.

However, these consolidation strategies have proved challenging to execute. Few private hospitals are covered by the national health insurance schemes – Hong Kong Asia Medical is an exception – and these facilities are generally too expensive for most patients to pay out of pocket. It is also difficult to hire top-quality local doctors, who still gravitate towards the public sector, while sellers often want eyewatering valuations for hospital assets.

The SinoCare investment comes from KKR’s third pan-Asian fund, which closed at $9.3 billion in June 2017.

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• Topics
• Greater China
• Healthcare
• Buyouts
• China
• KKR