Deal focus: Icon retains its private equity appeal

In the space of seven years, Icon Group has grown from a four-center, Australia-only cancer treatment business with an enterprise valuation of less than A$100 million ($72 million) into a multinational worth A$2.3 billion with a footprint encompassing five markets. During this period, the company has been through two sets of private equity owners and is now on to its third.

Quadrant Private Equity went first, exiting to Goldman Sachs Asset Management, QIC, and Pagoda Capital in 2017 with a 3.2x return. At the time, Icon was valued at A$1 billion. Last week, EQT agreed to take up the baton. It will acquire a 70% interest, with Goldman retaining 17%, and company management and doctors holding the rest. QIC and Pagoda are exiting with a more than 2x return.

It marks the continuation of a run of large-cap secondary buyouts. Ten deals have been announced so far this quarter and the cumulative disclosed proceeds stand at approximately $5.6 billion. This compares to 32 transactions and $3.4 billion in the prior three months. The proceeds for 2021 to date are $16.9 billion, comfortably ahead of the 2020 full-year total and on par with 2019.

“The consortium had majority control, so a trade sale was always likely,” says James Ieong, founder and managing partner at Pagoda, and before that an investment professional at QIC. “Many people saw Icon as an attractive asset. For strategics, it was a good add-on to their business. For private equity guys, it is stable, long-term investment.”

This stability appears to have resonated with EQT, which is acquiring the business through its infrastructure strategy. The investor, which already has exposure to Australia’s radiology space through I-Med, highlighted the appeal of Icon’s integrated cancer care model that enables the decentralization of treatment in major cities.

This is very much the case in Australia and New Zealand, where the company has 31 clinics that deliver more than 260,000 radiation oncology and medical oncology treatments per year. It also operates Australia’s largest private cancer clinical trials program, produces more than one million cancer drug infusions per year through a compounding business, and runs a network of 51 hospital pharmacies.

There are eight clinics in Singapore, four in Hong Kong – absorbed following the acquisition of SunTech Medical Group in 2019 – and four in mainland China. Ieong observes that the decentralization concept has yet to arrive in mainland China, though he accepts this may happen in the long run as regulators seek to ease the burden on hospitals. But this does not obscure the growth opportunity.

“The China strategy was the most challenging one because we knew that a fully localized team was needed to expand business there. We have built the China business from scratch,” Ieong says. “We established a local team after taking ownership, and soon after that, we had developed a strong local presence."

Icon’s clinics in mainland China are located within hospitals. It has partnerships with Sanbo Brain Hospital Management Group and United Family Healthcare. While Australia still accounts for most of the revenue, there are strong fundamentals that favor China.

The country was responsible for about 25% of global cancer incidence in 2020, with 4.6 million patients. There will be 5.2 million in 2025, Frost & Sullivan projects. Meanwhile, higher public awareness, stronger government support for screening, early detection and treatment, and better prevention mechanisms will see the five-year survival rate increase. It was 40.5% in 2003-2013, compared to 67.1% in the US.

 

"There are competitors out there but it’s not like everyone is trying to grab market share from each other,” says Ieong. “It’s really a new market with four million new patients a year, not existing patients. There is enough space for newcomers like Icon that can contribute technology, management, strategy, and bring the best practices from Australia via on-the-job training. It’s not easy. Other foreign players have tried do it, without much success.”

Icon is the largest investment from Pagoda’s debut fund, which closed on $215 million in 2016. It is also the private equity firm’s sole exposure to healthcare services, with medical technology and biotech better represented. However, oncology is a common factor.

“We aren’t going to invest in general hospitals, but we do look at the specialized services such as oncology value chain, from drugs to devices to specialized services," says Ieong.

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• Topics
• Australasia
• Healthcare
• Buyouts
• Infrastructure
• Trade sale
• Australia
• EQT Partners
• Goldman Sachs
• Pagoda Investment
• QIC