Entering the age of buyouts in healthcare investing

AMID a slowdown in global activity, healthcare in Asia remains an attractive industry with long-term tailwinds such as continued government support, ageing demographics and growing innovation.

However, healthcare investing in the private space is always evolving. As the market transitions from excessive exuberance to a new era of “guarded optimism”, buyout strategies – where investors acquire controlling ownerships in mismanaged or undervalued mature companies – are becoming crucial.

This is evident with the number of buyouts rising 21 per cent in the first three quarters of 2024. This trend will continue to accelerate as the global economy continues to slow down.

Companies will increasingly turn towards consolidation to be more efficient and owners will consider investors with strong value creation capabilities that can make their business more productive. This is a particular trend in Asia where many businesses are family-owned and where mid-market private equity firms will play a huge role in providing capital and commercial expertise.

Reducing reliance

A primary advantage of buyouts is gaining access to the target company’s cash flow as a majority owner, rather than just holding minority equity. This control reduces reliance on volatile market liquidity, enabling investors to manage risks more effectively and achieve more predictable returns by focusing on companies with stable cash flows.

Additionally, simply “discovering” value and expecting an exuberant exit environment to drive returns is no longer sufficient. Success instead belongs to those who can proactively create value.

Buyouts – where investors have greater control to drive transformative initiatives (including both topline growth and cost optimisation) – present a compelling approach to navigate market turbulence and capitalise on long-term growth and resilience of the healthcare sector.

The successful execution of buyout strategies requires a hands-on approach to manage investments effectively. With over a decade of experience in healthcare private markets as Asia’s largest healthcare-dedicated asset management firm, we firmly believe that investors must play a more active role in the companies they fund, moving beyond simply injecting capital.

Too often, shareholders remain passive in spite of CEOs making decisions counter to macro trends, leading to financial losses. Without a willingness to challenge the status quo, substantial and sustainable growth will remain elusive.

To drive meaningful progress, it is essential for investors and founders to align their goals and embrace a healthy degree of friction. Active engagement, whether through strategic decision-making or placing the right talent in key executive roles within portfolio companies, is crucial.

Enhancing value creation requires investors to take on greater responsibility – contributing not just capital but also strategic insights and operational expertise.

Some successful examples with our portfolio companies include enabling manufacturing localisation to drive production costs down, expanding products to new markets, and optimising commercial operations and market access to accelerate growth.

This hands-on approach fosters stronger alignment, builds closer partnerships, and enables improved performance and sustainable growth, rather than focusing solely on short-term gains.

Buyout strategies

Beyond adopting a hands-on mindset, it is essential to understand the unique characteristics of Asia’s healthcare landscape to identify and seize investment opportunities. CBC has developed three distinct buyout strategies tailored to this region.

Firstly, given the high levels of fragmentation across the various healthcare subsegments in Asia, CBC has developed a buy-and-build approach. Here, a private investor acquires a company and then integrates additional complementary acquisitions to accelerate growth and enhance value. It focuses on integrating multiple businesses into one larger entity, with the aim to create economies of scale and market champions, rather than pursue incremental growth through disparate investments.

One example is Everbridge Medical, a China-based innovative medtech platform that we incubated. In two years, Everbridge has successfully acquired and integrated seven companies across peripheral intervention, neuro intervention and oncology and is now on track to be a global Top 100 medtech company in five years.

Secondly, CBC has developed a carve-out playbook. With increasing geopolitical tensions or market pressure to focus on core businesses, large organisations such as MNCs and Asian conglomerates are willing to divest healthcare assets that are deemed non-core.

However, this does not mean they are necessarily of little value. By putting these assets into the right owner who will give them attention, they can grow exponentially and unlock significant value. In 2022, CBC formed Hasten and acquired China rights to five branded cardiovascular and metabolism drugs from Takeda.

Since then, not only have we reactivated growth in China and initiated manufacturing localisation, but we have also further expanded its portfolio to 18 products and to other parts of Asia including Singapore, South Korea, and Thailand. We are now also repeating this playbook by carving out the China neurology and allergy business from UCB.

Thirdly, with the growing number of local innovative healthcare players, CBC has made technology globalisation a key strategy. With our global expertise and network, we aim to support domestic leaders with products that are high quality yet affordable to expand their reach.

Hugel, a Korean medical aesthetics player that produces botulinum toxin and dermal fillers, is a domestic leader. Since our investment, we have worked closely with the company to accelerate its global growth story, entering 28 and seven new countries for toxin and fillers respectively, helping it to achieve the No 4 global position behind three multinational corporations.

In a region like Asia where access to quality care is a persistent issue, buyout strategies can accelerate the growth of large healthcare platforms to efficiently deliver fit-for-purpose medical solutions to patients.

The road ahead

The market has shifted from “infinite growth” to “finite competition”, signalling the end of an era and the start of a new one. The likelihood of achieving high returns using past strategies is slim.

In Asia, where the healthcare sector is ripe for innovation and growth, a well-executed buyout strategy offers a pathway to thrive amid challenges.

By staying focused with the right approach, private capital can become a transformative force, ensuring that healthcare investing not only meets today’s demands and drive value for investors, but also shapes the future of the industry, delivering meaningful impact for years to come.

The writer is chief executive officer of CBC Group