Why does the healthcare sector attract so much foreign investment?

Hundreds of millions of dollars in foreign capital are flowing into the healthcare sector as the middle class grows, the population ages, and health awareness increases.

From just a few individual deals each year, over the past year, Vietnam's healthcare sector has welcomed a large influx of foreign capital. Peaking in the third quarter of 2023, a series of investment deals in the healthcare sector were signed, most notably Thomson Medical Group (TMG) acquiring FV Hospital and Dongwha Pharm taking over half of the capital of the Trung Son pharmacy chain.

According to statistics from equity investment firm Kirin Capital, mergers and acquisitions (M&A) activity in the healthcare sector in 2023 saw 11 deals with a total reported value of US$508 million, double the amount in 2022. This is the third-highest M&A sector, after the traditional financial and real estate sectors. The majority of buyers were foreign entities.

"Healthcare was one of the most active M&A sectors in 2023, both in terms of the number and value of transactions. The healthcare sector is demonstrating strong growth potential in the Vietnamese market," Kirin Capital noted.

Speaking to VnExpress , a representative from Thomson Medical Group assessed that the private healthcare market in Vietnam will be driven by a growing middle class, an aging population, and increasing immigration from abroad. From the perspective of the Singaporean company, Vietnam is on track to become an upper-middle-class nation by 2035 and a high-income nation by 2045. Vietnam currently has the seventh fastest-growing middle class in the world , projected to add 36 million people by 2030, according to the McKinsey Global Institute.

The growing middle class will drive spending on healthcare and raise awareness of the importance of individual health and well-being. From 2017 to 2022, Vietnam recorded historically strong GDP growth at a CAGR of approximately 8.6% per year. Simultaneously, according to Euromonitor, healthcare spending increased at a CAGR of approximately 9.2%.

Furthermore, the rapidly aging population is increasing the demand for geriatric care and other specialized healthcare services. Currently, the average life expectancy in Vietnam is over 75 years. The McKinsey Global Institute predicts that the elderly could account for more than 17% of the population by 2030.

The increasing influx of foreign immigrants is also a factor driving market demand. Vietnam had approximately 101,550 foreign nationals in 2021, up from 83,500 in 2019, according to statistics from the Ministry of Labor.

A representative from Thomson Medical Group stated that having a strong partner at FV Hospital will open up opportunities to explore investments in other ancillary healthcare sectors to complement FV Hospital's strategy and the group's core areas. This will significantly contribute to their sustainable long-term growth.

A doctor examines a patient at a hospital in Ho Chi Minh City, April 2023. Photo: Quynh Tran

Sharing this view, Andy Ho, CEO of VinaCapital's Investment Council, believes that the healthcare sector in Vietnam continues to assert its position as an attractive market for investors. The rapid growth of the middle class, increased health awareness among the population after the pandemic, and the persistent overcrowding in public hospitals have created a high demand for private healthcare services.

VinaCapital is one of the pioneering investors in the healthcare sector in Vietnam, notably for its investment in Hoan My Medical Hospital and subsequent divestment in 2013. Currently, they have invested in two hospital systems, totaling 14 hospitals and clinics. VinaCapital views these as long-term investments, potentially spanning 8-10 years instead of the typical 5-7 years for other investments, as increasing the value of hospitals requires significant time and effort.

Explaining why this sector attracts foreign investment, Mr. Andy Ho said that the primary reason is that there are still many opportunities for investors and private hospitals. Currently, private hospitals only account for 5% of the total number of hospital beds, while the Ministry of Health aims for 15% by 2025. Therefore, there are many opportunities for the private healthcare system to grow and attract large investments.

"On the other hand, the valuation of private hospitals in Vietnam is reasonable compared to their growth potential, so if investors choose the right hospitals, it will not be difficult to achieve attractive profits in the future," added Andy Ho.

Looking ahead, Kirin Capital forecasts that the investment landscape in Vietnam's healthcare sector will continue to be vibrant, with ample investment opportunities and a greater diversity of transaction characteristics, types, and buyers/sellers. "The diversity in transaction structures and the significant number of investment opportunities will drive the growth of M&A activities in Vietnam's healthcare sector," the analysis team stated.

However, the private healthcare market is not without its challenges. In fact, many private hospitals have been operating at a loss for years, partly due to opportunistic business practices driven by profit, and partly due to the public's preference for public hospitals. Furthermore, regulations regarding the socialization of healthcare still have some shortcomings.

In July 2023, Shizim Group, one of Israel's largest life science companies, signed a preliminary agreement with Dolphin Vung Tau Co., Ltd. for the construction of a one-billion-dollar international hospital within the Vung Tau International Beach City project (Ba Ria - Vung Tau).

Speaking at the signing ceremony, Mr. Le Minh Hai, Chairman of Dolphin Vung Tau, said that the management agency needs to break down the "request-and-grant" mindset. According to him, the international hospital in Vung Tau, as well as other projects in cooperation with foreign investors, are a convergence of one party with financial resources and another with ambition and implementation capacity. In this context, foreign investors are only concerned with two factors: proving the legal status of the land for the project and obtaining the approval of the management agency.

Tat Dat

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