Deal focus: Investcorp bides its time with Linkedcare

Investcorp refused to be rushed in its due diligence on Linkedcare, despite recognizing that the Chinese company sits at nexus of two of the country’s most attractive investment themes – software and healthcare. The process took six months, culminating in the private equity firm leading a $70 million Series D round. Additional contributions came from Matrix Partners China, Lightspeed China Partners, and local online cosmetic surgery platform So-Young International.

“We didn’t take shortcuts. We applied our global standards in terms of due diligence and negotiation, standards that we are accustomed to seeing in European and US markets,” says Duncan Zheng, a managing director and head of China private equity at Investcorp.

Linkedcare currently supplies software-as-a-service (SaaS) solutions to more than 30,000 dental and medical aesthetic clinics in China. These are used across numerous functions, from customer relationship management and patient management to inventory tracking and insurance payment tracking. This is complemented by a dedicated online mall that connects clinics and equipment suppliers, feeding orders through the SaaS system to make procurement more efficient.

Investcorp claims to have leveraged its international networks and experience to stand apart from other investors. First, it owns Frankfurt-headquartered Acura, one of the largest dental clinic chains in Europe. There is scope for Linkedcare to expand its procurement capabilities into Europe, sourcing high-quality branded European dental products for the China market.

Second, the private equity firm has a clear idea of what Linkedcare might become. Weaving together SaaS and supply chain services is commonplace internationally and Zheng sees Henry Schein – the world's largest distributor of dental equipment and a supplier of cloud-based software for dental offices – as a reference point.

"SaaS is an entry point to provide services to consumer-facing companies, and that leads very easily into supply chain services,” he says. “SaaS products usually involve the inventory side and the usage of inventory, so it’s all part of the same value chain and quite closely related."

However, Linkedcare and Henry Schein differ in the sophistication of their technologies, specifically artificial intelligence (AI) and 5G-driven solutions that are being developed and introduced to clinicians. “I think Linkedcare is already a next-generation company. The Western benchmark would be a traditional SaaS-plus-supply-chain company. Linkedcare brings together SaaS, supply chains, and AI,” says Zheng.

In this respect, the company is part of a broader trend in China, characterized by the emergence of SaaS business models that are superior to global peers by virtue of exposure to tech-savvy consumers who are willing to sample new innovations.

“SaaS in China is rapidly integrating a lot of AI-driven smart decision making and predictive tools that are not really available or easy to apply in mature markets. This is specific to SaaS in China,” Zheng says. “The next generation of AI and 5G-driven technologies can be scaled up rapidly here and used to help companies make better decisions and plan for customer needs, thereby boosting sales.”

There has been a significant acceleration in SaaS investment in the wake of COVID-19, prompted by a surge in end-user demand as companies recognized the importance of cloud-based solutions to remote working and service delivery under social distancing. “During the pandemic, companies continued subscribing to software. Since lockdowns were lifted, they have spent even more on SaaS to be more competitive in the post-pandemic world,” Zheng adds.

He sees COVID-19 as the ultimate stress test. Companies that have demonstrated their ability to thrive under these conditions now command high premiums to the rest of the market.

Investcorp, which has $35 billion in assets under management globally, launched a dedicated China healthcare platform last year, and Linkedcare is the fourth investment. It follows medical testing business KindStar, hospital operator Lu Daopei Medical Group, and digital health platform WeDoctor.

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• Topics
• Greater China
• Expansion
• Healthcare
• Technology
• China
• Growth capital
• Investcorp