Why does the healthcare industry attract so much foreign capital?

Hundreds of millions of dollars of foreign capital are pouring into the healthcare industry as the middle class grows, the population ages and health care awareness increases.

From just a few individual deals each year, over the past year, the Vietnamese healthcare and medical sector has welcomed a large inflow of foreign capital. The peak in the third quarter of 2023 was the signing of a series of investment deals in the healthcare and medical sector, notably Thomson Medical Group (TMG) acquiring FV Hospital or Dongwha Pharm acquiring more than half of the capital of Trung Son pharmacy chain.

According to statistics from equity investment company Kirin Capital, there will be 11 mergers and acquisitions (M&A) in the healthcare industry in 2023 with a total announced value of 508 million USD, double that of 2022. This is the industry with the third highest M&A transactions, after two traditional industries: finance and real estate. Most of the buyers are foreign entities.

"Healthcare is one of the most active M&A sectors in 2023, in terms of both transaction volume and value. The healthcare sector is demonstrating strong growth potential in the Vietnamese market," Kirin Capital commented.

Sharing with VnExpress , a representative of Thomson Medical Group assessed that the private healthcare market in Vietnam will be driven by the growing middle class, aging population as well as increasing immigration from abroad. From the perspective of Singaporean businesses, Vietnam is on the way to becoming an upper-middle-class country by 2035 and a high-income country by 2045. Vietnam is currently the country with the seventh fastest growing middle class in the world and will increase by 36 million people by 2030, according to the McKinsey Global Institute.

The growing middle class will drive healthcare spending and raise awareness of the importance of health and wellness. From 2017 to 2022, Vietnam recorded historically strong gross domestic product growth at a CAGR of about 8.6% per year. In parallel, according to Euromonitor, healthcare spending increased at a CAGR of about 9.2%.

In addition, the rapidly aging population is increasing the demand for geriatric care and other specialized health care services. Currently, the average life expectancy in Vietnam is over 75 years. The McKinsey Global Institute predicts that the elderly could account for more than 17% of the population by 2030.

The growing wave of foreign immigration is also a factor driving market demand. Vietnam is expected to have an estimated 101,550 foreigners in 2021, up from 83,500 in 2019, according to the Ministry of Labor.

Thomson Medical Group representative said that having a strong partner in FV Hospital will open up opportunities to exploit investments in other ancillary healthcare sectors to complement FV Hospital's strategy and the group's core areas. This will greatly contribute to their sustainable growth in the long term.

A doctor examines a patient at a hospital in Ho Chi Minh City, April 2023. Photo: Quynh Tran

Sharing the same view, Mr. Andy Ho - General Director of VinaCapital Investment Council, said that the healthcare sector in Vietnam continues to affirm its position as an attractive market for investors. The rapid increase of the middle class, the increased health awareness of the people after the pandemic, along with the overload situation at public hospitals that has not been resolved, has created a high demand for private healthcare services.

VinaCapital is one of the pioneer investors in investing in the healthcare sector in Vietnam, notably investing in Hoan My Medical Hospital and divesting in 2013. Currently, they invest in two hospital systems, a total of 14 hospitals and clinics. VinaCapital considers these as long-term investments, possibly 8-10 years instead of 5-7 years like other normal investments because increasing the value of hospitals requires a lot of time and effort.

Explaining why this industry attracts foreign capital, Mr. Andy Ho said that the first reason is that there are still many opportunities for investors and private hospitals. Currently, private hospitals only account for 5% of the total number of beds, while the Ministry of Health has set a target of 15% by 2025. Therefore, there are many opportunities for the private healthcare system to grow strongly, attracting many large investment organizations.

"On the other hand, the valuation of private hospitals in Vietnam is reasonable compared to their growth potential, so if investors choose the right hospitals, it will not be difficult to achieve attractive profits in the future," Mr. Andy Ho added.

In the coming time, Kirin Capital forecasts that the investment picture in the healthcare sector in Vietnam will continue to be vibrant, with wide-open investment opportunities, and more diverse characteristics, nature of deals, and buyers and sellers. "The diversity of transaction structures and the significant number of investment opportunities will drive the growth of M&A activities in the healthcare sector in Vietnam," said the analysis team.

However, the private healthcare market is not all sweet. In fact, many private hospitals have been operating at a loss for many consecutive years, partly because of "grab and run" business, chasing profits, and partly because people prefer public hospitals. In addition, regulations on socialized healthcare still have some shortcomings.

In July 2023, Shizim Group - one of Israel's largest life science enterprises, signed a contract in principle with Dolphin Vung Tau Company Limited to build a one-billion-USD international hospital at the Vung Tau International Coastal City project (Ba Ria - Vung Tau).

Sharing at the signing ceremony, Mr. Le Minh Hai - Chairman of Dolphin Vung Tau, said that the management agency needs to remove the mindset of asking and giving. According to him, the international hospital in Vung Tau, as well as other cooperation projects with foreign investors, are all a combination of one party with financial potential and the other party with ambition and implementation capacity. In particular, foreign investors are only interested in two factors: proving the legality of the land for project construction and the consensus of the management agency.

Siddhartha

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