Entrepreneurship Zone: 16 November 2021 :: East Africa: Investor identifies opportunities in the healthcare sector

Tue Nov 16 07:41:37 CAT 2021

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Entrepreneurship Zone: 16 November 2021 :: East Africa: Investor identifies opportunities in the healthcare sector

 <http://www.zitf.co.zw/> 

East Africa-focused private equity firm Zoscales Partners recently made its second healthcare investment by backing a private hospital in Kenya. How we made it in Africa spoke to Fredd Kambo, a partner at Zoscales, about investment opportunities in the region’s healthcare sector. Here are slightly edited excerpts from the interview.

Zoscales Partners recently invested in a private hospital in Kenya. What was the motivation for this transaction?

Premier Hospital is based in the coastal city of Mombasa. It has a capacity of up to 100 beds and offers a range of inpatient and outpatient treatments and services. The business is only a few years old but has already done really well. We invested about $10 million for a majority stake.

Healthcare is one of our focus sectors, along with fast-moving consumer goods (FMCG) and financial services. We are therefore always on the lookout for good healthcare assets. The reason why we made this particular investment is that it caters for a segment of the market that is not served properly. In Kenya, one has a situation where there are expensive but good quality hospitals that cater for upper-income patients, and then we have the public sector facilities. But there is what we call the missing middle – a shortage of facilities that offer good quality care to the middle class at a reasonable price.

Through this investment, Zoscales aims to assist the founders to offer more sophisticated care – like oncology, nephrology and cardiology – while still maintaining value pricing. There aren’t many hospitals offering these services in Mombasa, so we believe there is a good opportunity here.

Why did you decide on Mombasa for this investment?

We look at both countries and cities. Our thesis is that a lot of the growth in the East African region – especially on the middle-income level – is going to come from urbanisation. It is one of the trends we monitor closely. In Kenya, we are especially interested in the cities of Nairobi, Mombasa, Kisumu and Nakuru.

That said, for this particular investment, the company just happened to be in Mombasa. We weren’t specifically looking to make an investment in Mombasa. The fact that it is located in one of our focus cities was a big plus.

How competitive is Kenya’s private hospital industry?

The last number I saw was 80 private hospitals in Kenya. However, I take that figure with a pinch of salt because it is so difficult to gather accurate on-the-ground data. I think the real number is higher.

Fredd Kambo, partner, Zoscales Partners

While many of these hospitals are targeting the mid-market, relatively few offer a quality service. This is where the opportunity lies. The founders of Premier made the conscious decision to give up some margin to make its services affordable.

What would be a likely exit avenue for this investment?

This investment is part of building a healthcare platform comprising a number of East African healthcare businesses. It is our second healthcare investment, the first was Pioneer Diagnostic Center, a diagnostic services business in Ethiopia offering MRI, CT scan, X-ray and ultrasound services.

Several large private equity funds are looking at healthcare investments in the region. However, they are not interested in buying small single assets here and there but rather something sizable. An option would therefore be to sell the entire platform to one of these players.

Then there are also large international healthcare groups – particularly in the UAE, India, Thailand, Turkey and Malaysia – that are interested in Africa. Given their size, it doesn’t make sense for them to buy single assets. So, if we can put this platform together, exiting to one of these large organisations will also be an option.

Which other areas within East Africa’s healthcare sector are you most enthusiastic about from an investment perspective?

Throughout the region, there are many smaller outpatient clinics that are interesting to us because of their large geographic coverage. They fit into our thesis of affordable care. In addition, we also like diagnostics and imaging centres as well as laboratories.

We are watching telemedicine closely but in general, the industry is too early in its development for us as a private equity investor. It is currently more suited to venture capital firms. That said, there are really interesting companies in Kenya and Rwanda that bundle a range of on-demand healthcare services into a single platform. In the future, there will be a big opportunity in this space.

Are there any healthcare sub-sectors you would be hesitant to invest in?

We’ve looked at a few retail pharmacy opportunities but haven’t yet found anything compelling. It is a difficult industry and not one where we have much experience. Essentially it is more a retail distribution business than healthcare. It is not a hard ‘no’, we just tend to be very careful.-Howwemadeitinafrica

Mombasa-based Premier Hospital offers a variety of inpatient and outpatient treatments and services.

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DISCLAIMER: This report has been prepared by Bulls ‘n Bears, a division of Faith Capital (Pvt) Ltd for general information purposes only and does not constitute an offer to sell or the solicitation of an offer to buy or subscribe for any securities. The information contained in this report has been compiled from sources believed to be reliable, but no representation or warranty is made or guarantee given as to its accuracy or completeness. All opinions expressed and recommendations made are subject to change without notice. Securities or financial instruments mentioned herein may not be suitable for all investors. Securities of emerging and mid-size growth companies typically involve a higher degree of risk and more volatility than the securities of more established companies. Neither Faith Capital nor any other member of Bulls ‘n Bears nor any other person, accepts any liability whatsoever for any loss howsoever arising from any use of this report or its contents or otherwise arising in connection therewith. Recipients of this report shall be solely responsible for making their own independent investigation into the business, financial condition and future prospects of any companies referred to in this report. Other  Indices quoted herein are for guideline purposes only and sourced from third parties.

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