Deal focus: Navis targets hospitals in the hinterlands

From ParkCity Medical and Prince Court Medial to the various facilities operated by Southeast Asian giants IHH Healthcare and Columbia Asia, Malaysia’s Klang Valley is relatively well-populated in terms of private hospitals. In Kuala Lumpur, there are 4.6 beds per 1,000 people – higher than Singapore – and 40% of the total supply is under private ownership.

Move away from the country’s most affluent areas and the picture changes dramatically. The national bed ratio falls to 2.0 and private sector accounts for just 26.9%. In the target catchment area for Aurelius Healthcare, a hospital platform planned by Navis Capital Partners, there are 2.5 bed for every 1,000 people and the private share is just 21.7%, which the private equity firm sees as indicative of a shortage of quality facilities offering a higher-level of service.

“One of the investment themes at Navis is addressing pent-up demand. It changes the payback period because it takes less time to achieve high levels of utilization and maximize profit,” says Nick Bloy, a managing partner at the firm. “In our opinion, the Klang Valley is fully satisfied – there isn’t much need for new beds, and if you put them in, they will take a long time to fill. We are trying to find areas that are underserved, where townships are growing very fast and the healthcare sector hasn’t kept up.”

Navis is willing to commit up to $100 million to Aurelius from its latest pan-regional fund and build a portfolio of 6-8 hospitals. Agreements have already been signed for two tertiary hospitals with an enterprise value of approximately $80 million. The first is an existing 100-bed facility situated 15 kilometers from Kuala Lumpur International Airport, beyond the traditional perimeter of the Klang Valley but readily accessible by highway. Developing medical tourism is on the agenda.

The hospital sits on 10 acres of land of which only 3-4 acres is currently being used, leaving scope for expansion. Navis has recent experience in this area, having doubled the capacity of Hanoi French Hospital in Vietnam by building a new seven-floor hospital alongside the existing facility. The plan is to add an initial 45 beds in Malaysia with more to follow.

The second facility is more in keeping with the off-the-beaten-track remit. Situated in Alor Setar, the capital of Kedah, one of Malaysia’s northernmost and least developed states, the hospital has 200 beds and is expected to come online within 15 months. It is about as greenfield as Aurelius is willing to get.

“We will do very late-stage greenfield because pure greenfield takes forever. You need to get the land and then all sorts of approvals before you can start commissioning and building hospitals. It can take 4-5 years to open and then maybe 2-3 years to break even, which doesn’t suit a private equity timeline,” says Bloy. “We can buy late-stage greenfield assets from other investors, typically property guys developing townships who want a hospital. They start building and worry about who operates it later.”

The Aurelius team is led by Amir Firdaus, who has 25 years’ experience with major healthcare groups in Southeast Asia and the Middle East. Bloy observes there are few teams in Malaysia capable of operating a hospital group.

Once the platform achieves the desired scale, the big question is what happens next. Demand for private healthcare in Malaysia is increasing on the back of an expanding middle-income segment, an aging population, rising insurance penetration, and underinvestment in public hospitals. Other markets in Southeast Asia share some, if not all, of these characteristics.

“Do we think about doing this on a more international basis? What about Vietnam and Indonesia?” Bloy says. “We would probably bring in some additional co-investment if we wanted to do that.”

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• Topics
• Southeast Asia
• Healthcare
• Buyouts
• Malaysia
• Navis Management