Investors rush booming healthcare business in China, helping M & A deal values exceed the hot Internet sector, as the country prepares to serve hundreds of millions of elderly.
Encouraged by a relaxation of foreign ownership rules last year, and a rapidly aging population, the private equity firms TPG Capital and as industry players including IHH Health Malaysia are investing in Chinese hospitals, pharmaceutical companies and device manufacturers.
The prospect of 223 million people aged 65 or older predicted to live in China in 2030 is too tempting for these companies, despite the significant risks, as weak hospital infrastructure, increased valuations and the shortage of doctors .
Companies have begun to harness connections local partners to recruit physicians, and to help streamline local licenses and permits to begin work on planned projects.
China has the health care provided by the private sector, businesses and consumers state-owned to triple to 8 trillion yuan ($ 1.3 billion) over the next five years as it tries to cope with the boom aging of its population, the result of decades of the country's one-child policy and low current fertility rate.
"I spend 70 percent of my time looking for deals healthcare in China," said Steve Wang, co-founder of private equity firm based in Hong Kong Pino Golf Capital. "It's a very hot sector in China, as hot as mobile Internet."
After years of steady growth, mergers and acquisitions China's health more than doubled to a record $ 18.5 billion in 2014, showed data from Thomson Reuters. This January, deals totaled $ 6.9 billion, an acceleration in activity that points to another blockbuster year.
Deals involving e-commerce in China, Internet software, services and infrastructure also reached a record in 2014, but with a $ 17.9 billion were lost health.
China began liberalizing its health sector in 2009, but it was not until 2014 that allowed full foreign ownership of hospitals, the prices of medicines deregulated and implemented rules to expedite approval of medical devices.
That optimism has pushed valuations for some firms consistently above. Phoenix Healthcare Group, No.1 private hospital group in China, listed in Hong Kong in December 2013 to 25.1 times its expected earnings. It now trades around 35 times.
Other risks for potential investors in China, where government policies are often unpredictable, are lack of doctors and the long approval process licenses hospital.
The country had 14.6 physicians per 10,000 population in 2012 compared to 38.5 in Australia, 24.2 in the United States and 17.6 in Brazil, according to the World Health Organization.
"When you look in the hospital sector and supply, in particular the medical point about availability is very important," said Vikram Kapur, partner at consulting firm Bain & Co. "So the risk to be managed is for sure you can attract enough doctors to private institutions. "
TPG, Blackstone Group and Shanghai Fosun Pharmaceutical China Pharmaceutical Group are among the investors who have already bought in hospitals, medical device manufacturers and service providers in China.
"We are very positive on the New China, especially the health sector," said Kinger Lau, chief strategist at Goldman Sachs China. "The concept of reform in the health sector is very attractive from the point of view of investment as living standards improve and the population ages."
IHH Health, the largest hospital operator in Asia, already has a hospital in Shanghai and smaller clinics in the country and is in talks to further expand in China, President Suleiman Abu Bakar told Reuters.
"China is big, so it's not only going to Beijing and Shanghai," Suleiman said. "For the private sector, these are very early days. We think it's a good thing for us to come now."
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