TPG, Fosun sell China hospital business to Antony Leung's SPAC

Leung, who served as financial secretary of Hong Kong before turning to a career in private equity, is one of several high-profile Asian dealmakers to form SPACs – or blank check companies – in the past 18 months. New Frontier Corporation (NFC) raised $478 million in a US IPO last July, starting the clock on a two-year period during which the vehicle must complete a business combination or be disbanded.

In addition to the IPO proceeds, NFC has secured equity commitments totaling $711 million from investors including Vivo Capital and Nan Fung Group, with $565 million of that capital earmarked for the UFH acquisition. NFC will also contribute $90 million in cash from its trust account and source up to $300 million in senior debt, while UFH management and Fosun will roll over some of their equity, taking a 12% position in NFC. This will leave $180 million on NFC’s balance sheet for capital expenditure.

The goal is to create one of China’s largest listed integrated healthcare services companies – known as New Frontier Health (NFH) – with an initial enterprise value of $1.44 billion. It will continue to pursue expansion opportunities. As part of the deal, UFH will manage NFC’s flagship hospital in Shenzhen. The company acquired the facility from China Resources Group for RMB1.12 billion ($163 million) in January and plans to turn it into a 64,000 square-meter general hospital at a cost of RMB3 billion.

TPG and Fosun took ownership of UFH through a $461 million privatization of US-listed Chindex International in 2014. They worked alongside Roberta Lipson, the founder and CEO of UFH, who will retain her position under NFH. The company generated $179.4 million in revenue and a net loss of $6.1 million in 2013.

UFH now has 700 licensed beds across seven hospitals – with two more under construction – and 14 clinics in Beijing, Shanghai, Guangzhou, Tianjin, Qingdao, Hangzhou, and Bo’ao. Its services cover primary care, family medicine, pediatrics, obstetrics, gynecology, IVF, surgery orthopedics, and oncology. Revenue is set to reach RMB2.5 billion in 2019. Over the next five years, revenue and adjusted EBITDA are expected to see compound annual growth of 18% and 50%, respectively.

“We invested in UFH with the belief that the company was in a strong position to address a substantial and growing need for quality private healthcare in China. Over the past five years, UFH has had tremendous clinical, operational and commercial success in expanding its footprint and growing its customer base across China,” Scott Chen, a partner with TPG, said in a statement.

New Frontier Group, of which NFC is an affiliate, is run by Leung in conjunction with Carl Wu, another Blackstone alumnus, and Norman Cheung, a serial entrepreneur who established storage start-up Boxful. It has interests in healthcare, internet services, artificial intelligence, big data, education, and financial services.

The healthcare portfolio comprises hospital operator Care Alliance, licensed doctor group Unimed Clinic, senior care facility operator YD Care, precision medicine business Precision Medical, cancer care specialist Heal Oncology, and children-focused rehabilitation services provider Mango Pediatric. Together they have a presence in 10 cities, with seven hospitals, 40 outpatient centers, more than 3,000 licensed beds, and 1,800 employees.

A SPAC represents a fast way to raise money, especially in a bull market, and avoid the wait for a liquidity event. From an investor perspective, it means giving money to a vehicle that has no existing business in the expectation that its primary rainmaker can delve into his networks and deliver deals. The sponsor receives 20% of the shares once a structure lists, but they only hold value if there is an acquisition. The sponsor must also underwrite all the listing, deal sourcing and execution costs.

In addition to Leung, Sing Wang, ex-head of North Asia at TPG Growth, has raised capital out of the US for a China-focused SPAC, while New Silk Route founder Parag Saxena is doing the same in India.

Earlier this year, Baring Private Equity Asia listed Clarivate Analytics – an education business acquired from Thomson Reuters in conjunction with Onex Corporation – through a merger with a SPAC at an enterprise value of $4.2 billion. The SPAC, Churchill Capital Corp, was established by Jerre Stead, formerly chairman and CEO of IHS Markit, to pursue opportunities in information services.

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• Topics
• Greater China
• Buyouts
• Trade sale
• IPO
• Healthcare
• China
• TPG Capital
• Fosun Group