Law firms interviewed: Baker McKenzie Vietnam, A&O Shearman
Southeast Asia's healthcare sector is experiencing a surge in mergers and acquisitions (M&A) activity, with private equity investments significantly influencing the industry's development.
Between the months of January and April this year, the region’s healthcare industry saw a deal value of $1.13 billion, including Fullerton Health’s sale to Far East Drug Co. and the acquisition of Eu Yan Sang by Japan’s Mitsui and ROHTO Pharmaceutical. The deals continued later in the year as well, with IHH Healthcare announcing in September its purchase of Island Hospital in Penang for $900 million.
Lawyers specialising in dealmaking advisory in the healthcare sector are quickly catching on with these emerging developments.
Yee Chung Seck, partner and head of M&A and healthcare & life sciences at Baker McKenzie Vietnam, tells ALB that recent patterns in Southeast Asian healthcare M&A reveal a marked increase in both the number and value of deals.
The focus has shifted towards targets operating in biotech, digital health platforms, and technology-driven healthcare services. Additionally, there's a noticeable trend towards the consolidation of healthcare providers, including hospitals and specialty clinics.
“For the next couple of years, we see from a broader view that there will be still compelling opportunities for M&A healthcare in Southeast Asia countries given global companies and investors are building resilience through transactions, partnerships and inward investment in the Asia-Pacific region,” he says.
Specifically, private equity investors will be expected to play an increasingly important part in this landscape, as the trend for restructuring and divestment continues.
For instance, the IHH Healthcare acquisition of Island Hospital, one of the largest deals in Malaysia this year, exemplifies this trend. Malaysia’s biggest hospital operator has acquired Island Hospital from Comprehensive Care Sdn Bhd, an Affinity Equity Partners-led consortium. The private equity firm, which started investing in Island Hospital in 2015 and held a majority stake of 78 percent, has now fully completed its divestment.
As James Mythen, a partner at A&O Shearman in Singapore, noted, this acquisition “shows the ongoing strength of healthcare mergers and acquisitions in the ASEAN region.” Hospitals, clinics, and other healthcare facilities have become prime targets for M&A activities in recent years.
Several factors are driving these changes, according to lawyers. Internally, healthcare providers are seeking operational restructuring to improve efficiencies and reduce costs through consolidation, Seck says. The competitive pressure to stay relevant in a rapidly evolving market is pushing providers to acquire new technologies and capabilities through M&A.
Externally, Seck points out that the healthcare transformation via artificial intelligence (AI) is a significant driver. “Rapid advances in AI and data processing have enabled a new generation of solutions, from gene sequencing to health monitoring. The collaboration between technology platforms, industry players, private investors, and public organisations is powering this transformation”, he says.
Against this backdrop of market dynamism within the healthcare sector, and the shifting technological landscape in Southeast Asia, it’s natural that countries in this region – some of the fastest growing in Asia in recent years – make for attractive markets for healthcare M&A deals.
That’s because with rapidly ageing populations, a growing group of digital natives with spending power, and a low density of skilled healthcare professionals, these markets offer compelling opportunities for investors.
In addition, with favourable government policies and regulations further boosting private healthcare investments and local manufacturing of healthcare products, lawyers have good reasons to be optimistic about the dealmaking prospects in Southeast Asia’s healthcare space.
Vietnam, for instance, has set an ambitious target of becoming a high-value pharmaceutical manufacturing hub, aiming to earn $1 billion annually from pharmaceutical exports by 2030.
However, Seck cautions foreign investors to be aware of regulatory challenges, particularly merger control regulations in ASEAN countries.
“Merger control rules are expanding and becoming more unpredictable and interventionist, while foreign investment screening is increasingly geopolitical. Under these regimes, transactions that meet financial or economic thresholds may be subject to regulatory approval, often prior to closing,” he says.
This includes share or asset acquisitions; new greenfield joint ventures or investment vehicles; changes in shareholdings, and potentially various types of structures other than mergers and acquisitions.
To mitigate disruption to transaction timelines and to ensure deal certainty, it is important to map out issues as early as possible. “This entails planning for and running a multi-jurisdictional assessment in advance, to determine where and which filings and approvals may be required,” adds Seck.
