India’s share of global deal activity in the healthcare industry has increased significantly since the covid-19 and the sector is at the precipice of a transformative era.
Substantial inorganic growth is anticipated in the sector by way of M&A activity, consolidation, joint ventures, and partnerships, despite global supply chain disruptions, geo-political turmoil, and inflationary concerns.
The growth trajectory is expected to persist as the Indian healthcare market continues to mature, and offer an unparalleled risk-return profile.
Investors are keen on diversifying the geographical base and India, with its resilient economic growth, government initiatives promoting ease of doing business, incentives for manufacturing through ‘Make in India’ campaign, and a thriving middle class, is driving investment by offering numerous growth engines. With increased spending on private and public healthcare, India is emerging as the preferred choice and leader for M&A activity in the Asia Pacific region.
Unlocking value through synergies, strategic and cultural alignment, optimization of operations, and elevating patient care standards will remain relevant across the value chain. As operators look to consolidate position and evolve their business models to deal with disruptive technologies, M&A activity is expected to be used extensively to add scale, diversification, and acquisition of new capabilities and markets.
Strategic M&A activity is likely to remain strong, supported by rising domestic demand for quality healthcare. Domestic operators are expected to further consolidate their position in both multi-specialty and single-specialty segments and continue the rally.
Sustained growth, increased spending, and demand for quality healthcare, growing ancillary sector, and an evolving medtech ecosystem are expected to attract more private equity money.
Recent large-scale deployment for control deals and exits by PE and sovereign wealth funds have helped establish the upside potential of the Indian healthcare market. New investments are expected to support the creation of platform assets, capital expenditure requirements, enhance efficiencies, consolidate position, and eventually capitalise investments.
With persistent growth potential, the sector is also seeing new players enter the market as investors are looking to diversify their portfolios, for example, giant tech companies like Amazon and venture capital firms are entering the healthcare market segment, thereby causing an upsurge in M&A activity, and increasing competition.
In the interest of efficiency, operators will continue to strategically evaluate non-core and margin-dilutive assets for divestment, strategic consolidations to leverage economies of scale, optimize operations, drive efficiencies, and enhance access to affordable care.
M&A deals are projected for fragmented sectors such as private clinics, dental, dermatology, veterinary clinics, ophthalmology, IVF, nursing homes and geriatric care. Financial and operational difficulties amplified by high inflationary health costs diluting profitability, the need for digital innovation, and clinical workforce shortages will continue to present opportunities for buyers keen on consolidation and creating value.
Single-speciality hospital and speciality clinics, led by scalable and asset-light models and offering more specialized care are also expected to see more M&A activity.
Tier-2 and tier-3 cities will continue to offer good opportunities for investments, given the existing density of facilities, fragmentation of the sector, limited penetration outside urban cities (in remote areas), and growing demand for quality healthcare.
Technology is expected to help democratize access and bridge existing gaps. Digitization has made a sustained positive impact on how healthcare is delivered in smaller cities and increased access due to the adoption of technology in delivering care, and this is expected to further boost investment.
M&A opportunities in health tech and innovative technological companies are expected to grow and there is increasing interest from financial sponsors.
Generative AI is expected to bring transformative immersive technologies, with smart hospitals, robotic surgery, telemedicine, health tech, biotechnology, extended reality, precision medicine, gene therapy, expected to deliver cost-effective value-based healthcare. M&A expansion in healthcare and technology will require upskilling of the workforce to safeguard patient data against any potential cybersecurity breaches.
Long-term consumer healthcare is also an attractive market for investors. With an aging population and increasing cost of living, consumers preferences are moving towards long-term healthcare, medical tourism, wellness solutions, prioritizing mental health, and choosing over-the-counter medicine, vitamins, and supplements.
Regulators are expected to closely monitor mid- to larger-size deals with renewed interest, trying to strike a balance between innovation, competition, and consumer protection alongside a fair market equilibrium, preventing any cartelizing.
The government has taken several steps to create a robust health ecosystem and introduced various policies and initiatives to attract domestic and foreign healthcare investments. With positive policy directions and legislative refinements, the healthcare sector in India is poised to grow exponentially.
(Aditya Patni is partner and Achint Kaur is counsel at Khaitan & Co. Views expressed are personal.)
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