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Medical investment popular among VC, PE

Updated: 2011-07-16 10:47

By Cai Xiao (China Daily)

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BEIJING - Investment in private hospitals has recently become increasingly popular among venture capital (VC) and private equity (PE) firms as a result of policy incentives and the huge potential in China.

Chen Shiyou, managing director and head of private equity at China International Capital Corporation Limited (CICC), told China Daily that the company has invested in two private hospitals, one of which has attracted several hundred million dollars in investment, while the other has garnered tens of millions of yuan.

"We pay particular attention to the health sector, including private hospitals, because it is increasingly supported by the government," Chen said.

In December, the State Council, China's cabinet, announced that social capital is being encouraged to invest in private medical institutions to aid large-scale equipment purchases.

According to a report from the Zero2IPO Group, a PE research agency, allowing such investment can facilitate the development and growth of private clinics and small hospitals into larger-scale operations or high-end hospitals.

Chen said CICC is interested in middle- and late-stage investment, preferring companies that have good business models and need money for expansion, rather than those at an early stage of development.

"We believe the companies in which we are investing have good long-term potential and the investment period can be as long as seven years," Chen said, declining to reveal the names of the hospitals.

Wang Cen, a partner at Beijing Tiantu Capital Co Ltd, which committed to invest 130 million yuan ($20 million) in Beijing Phoenix Group Hospital, a private entity, said there is huge potential in investing in private hospitals.

"Seeing a doctor is something that should be available to everyone, and should not be influenced by financial crises or other factors," Wang said, adding that his company is more determined to invest in this area since the government announced the policy.

By the end of November, five private medical institutions had received 500 million yuan of equity funds from VC and PE funds, according to Zero2IPO.

Zhang Suyang of IDG Capital Partners said that his company's fund is investing in a high-end private hospital in Shanghai, but declined to reveal further details.

According to Zhang, private hospitals are being encouraged to seek cooperation with VC or PE at the development stage, because an experienced investment institution can provide funds and suggestions about business models.

"When a private hospital has a good and sustainable business model, it is possible for it to make IPO plans to raise more funds," said Zhang.

The Zero2IPO report also said that medical risk-control should be vital. Medical services and products are closely related to the health and lives of consumers, and that accidents can severely damage the reputations of private hospitals.