New pastures to reward healthcare investors in APAC: report

Some private equity investors have been diversifying to Southeast Asia, India, and Japan.

Healthcare private equity (HCPE) investors that lean towards diversifying their portfolio by venturing into new sectors are expected to be rewarded in the face of an uncertain outlook in 2023, according to a report from Bain.

“There is likely to be a spread of potential outcomes for HCPE for the next year. Some signals continue to point to a global economic slowdown in 2023. In this scenario, funds may consider updating their downturn playbook,” the report stated.

Globally, healthcare private equity activity remained strong in the face of rising geopolitical tensions, high inflation, slumping stock markets, and spiking interest rates, and 2022 is poised to be the second-highest year on record for the sector in disclosed deal value and deal count, the report noted.

The number of deals is expected to fall about 20%–30% from 2021’s all-time high of 515 deals to around 400 deals in 2022, roughly in line with 2020.

Within Asia-Pacific, the macro trends of rising labor rates, rising interest rates, and tight credit all have country-specific nuances, and central banks in China, Australia, India, and Japan have all responded differently, Bain noted.

Whilst each country faces specific short-term headwinds, healthcare private equity investors in the Asia-Pacific region have received benefits from long-term healthcare tailwinds, large stores of dry powder specific to the region, and a maturing market with a strong pipeline of investable assets, the report added.

Some HCPE investors have been diversifying their focus from China to markets like Southeast Asia, India, and Japan, which was attributed to multiple lockdowns linked to the COVID-19 pandemic, evolving policies, and geopolitical dynamics.

That said, activity in China is still expected to remain robust, given growing interest from large buyout firms and venture capital.

Bain noted that circumstances for the sector in the region could still change fast in 2023 or 2024, and activity could rebound quickly.

“Investors will be working hard to have their proactive strategies ready and connect with management teams so that they are in a position to act with speed and confidence, especially when the credit markets open back up for large-check financing,” said Bain

Deals up in 2022

The Asia and the Pacific region revealed strong interest in large healthcare private equity deals with three deals amounting to over US$1b.

Interest in healthcare information technology and life sciences also rose in 2022. 

Investor attraction to HCIT was also seen last year, with “interest in buyouts for businesses optimising their operations in the light of escalating recession risks in key economies.”

Life sciences is still an attractive investment with six of top 10 deals in biopharma, life science tools, and related services.