Ben McLaughlin on the Changing Face of Healthcare in APAC
28 December 2016
To better understand the factors driving APAC healthcare deals, I spoke with Ben McLaughlin, chair of the Global Healthcare Group at Baker & McKenzie. Ben won the 2015 Financial Times Asia Pacific Innovative Lawyers Award for Innovation in the Use of Technology for his invention of the Baker & McKenzie Healthcare MapApp, which provides access to real-time information on laws and regulations impacting healthcare industries in over 40 countries.
Baker & McKenzie APAC healthcare group comprises 175 lawyers – 25 of whom have higher degrees in health sciences – focused on global European and US pharmaceutical and medical device companies.
Ben identified three key trends that are driving APAC M&A and private equity deals in healthcare which tend to be fueled by consistency of earnings, consistency of revenue, predictability, cash flow and bankable deals:
- “Education by acquisition” of Western hospitals and clinics
- The evolving role of healthcare technology
- Investment in well-respected over-the-counter products
Each of these trends is explained in further detail below.
“Education by acquisition” of Western hospitals and clinics
With the rise of the middle class in Asia, there is a corresponding increase in demand for healthcare. China in particular has a very strong interest in acquiring well-run Western hospitals and clinics in order to learn from them and leverage their management and expertise. Then, they can bring that knowledge home to improve healthcare facilities and the lives of Chinese people. This strategy is referred to as “education by acquisition.”
Since deals are being driven by more than pure financial interest, this space is experiencing intense competition that is leading to high valuations and relatively low rates of returns.
The evolving role of healthcare technology
The convergence of technology and healthcare has changed the buyer landscape, particularly in Japan, Korea, Singapore and Australia. Major technology companies are investing in and setting up healthcare divisions, while healthcare companies are creating technology divisions. A good example is Canon’s US$5.9 billion acquisition of Toshiba’s medical equipment unit. You can read more about that deal here.
Ben asserts that telemedicine is the kind of technology that could change the face of medicine in APAC. Delivering medical services to people at home and in remote communities via telemedicine could lead to a reduction in hospitalizations and surgeries, as well as a decrease of overall costs to the public. Australian corporates are well positioned to support the delivery of this type of advancement in healthcare throughout APAC, particularly in Asian countries.
Investment in well-respected over-the-counter products
Chinese consumers often lack trust in locally produced over-the-counter (OTC) health and beauty supplies and turn to overseas suppliers for safe, high-quality skincare lotions, ointments, vitamins, food supplements and other consumer products.
Ben explains that a typical Chinese corporate investor is interested in buying a company and taking production back to China to leverage existing domestic distribution channels. Investors are willing to pay high multiples for established, well-respected brands that will succeed in Chinese markets, which is why Western OTC manufacturers – particularly in Australia – make attractive acquisition targets.