Bain buys China hospital operator

APMG has two hospitals in Shanghai, two in Beijing and one in Tianjin, plus assorted clinics in China and Southeast Asia. Its prize assets are two facilities, one in Shanghai and the other in Beijing. Each has 80-100 beds and an established reputation in oncology and neurosurgery. Part of Bain's investment will go towards expanding capacity to 250-300 beds apiece.

"Shanghai and Beijing have restrictions on building hospitals in inner city areas so we may have to find other locations for expansion, but it will be the same hospitals and management teams," says Lihong Wang, managing director at Bain. "These two hospitals have good brand recognition and we would rather build more capacity than make acquisitions. I would not rule out acquisitions going forward - we have hospitals in the same specialty area approaching us - but it would have to be hospitals with good reputations and at reasonable prices."

Bain will take a more than 90% stake in APMG, facilitating an exit for two existing investors. According to AVCJ Research, cross-border cleantech and healthcare GP Cathaya Capital committed $20 million to the company in 2010, while the International Finance Corporation (IFC) provided $35 million in financing two years later, of which $20 million was in equity. Bain is said to have initially looked at APMG as a minority investment, but with the existing investors needing to exit, it subsequently switched to a control deal.

The private equity firm will contribute capital from its second and third Asian funds. This is the first investment by the latter vehicle, which closed at the end of last year at the hard cap of $3 billion with an additional GP commitment of at least $250 million.

China's hospital space has become a popular target for PE investors on the back of rising demand from an aging and increasingly affluent population and government reforms intended to bring more private capital into the sector. Strategies range from building greenfield facilities - Hillhouse Capital and Trustbridge Partners have both taken this approach, supported by foreign strategic partners - to consolidating existing ones. Hony Capital, for example, bought Shanghai Yangsi Hospital as the centerpiece in a dedicated platform that is intended to absorb a dozen other facilities.

Wang places APMG in between these two poles. "We are taking a cautious approach, not buying up assets in order to scale quickly and get a capital markets realization," she says. "This investment requires patience because expansion takes time."

This is largely driven by the nature of APMG's assets. While much private equity attention has focused on retail-oriented services such as health check-up centers and general treatment fields including maternity care, APMG is very much a specialist. The business - which was founded in 1992 by Dr. Michael Choy, who remains involved, and a group of US-based physicians and surgeons - offers a range of primary and specialty services, but has a particular proficiency in neurology and oncology.

Wang believes the barriers to entry in these areas mean APMG should be able to avoid the intense price competition that has emerged in other service areas. "You need to have good doctors, a good brand and good services, so it is harder to really ramp up," she explains. "However, if you have a good foundation there is room for expansion."

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• Topics
• Greater China
• Buyouts
• Healthcare
• China
• Bain Capital Asia