Demand Fuels Growth of Sri Lankan Healthcare Deals

Emerging markets specialist Actis exited its investment in a large Sri Lankan private healthcare hospital via a sale to TPG Growth.

With a consumer class that is finding its purchasing power increase and a positive long-term economic outlook, Sri Lanka’s government and sources of private capital are learning to work together. Consequently, the “Teardrop of India” is growing as a destination for private equity investment.

Sri Lankan healthcare is of particular interest to emerging markets specialist Actis. The PE firm recently exited its investment in Asiri Hospital Holdings after a little more than three years of ownership. The firm sold its 28 percent stake in the portfolio company to TPG Growth for an undisclosed sum, according to an announcement.

“[Sri Lankan] consumers are increasingly seeking better healthcare services and particularly value the convenience offered by the private sector compared to the government sector,” says Asanka Rodrigo, a partner at Actis. “Demand for private healthcare is growing rapidly, and the government is supportive of the private sector investing to increase capacity and reducing the burden on government health expenditure.”

The dynamics of Sri Lankan healthcare are vastly different from those of other countries in South Asia. The government sector is modeled on the national health system of the United Kingdom and provides good service to citizens at no cost, explains Rodrigo.

“However, as people have more disposable income, they are looking for better service with no wait times, better hospital infrastructure with private rooms, and the latest in diagnostics and medical technology, in which the top end of the private sector has been investing to provide,” says Rodrigo.

Under Actis’ ownership, Asiri is now the largest multispecialty private healthcare business in Sri Lanka, holding 30 percent of the nation’s private sector capacity, according to the announcement. The company was created in 1980 and currently has a network of four hospitals with roughly 580 beds. Actis acquired its stake in Asiri from Softlogic Holdings in October 2012 and took multiple steps to dramatically grow the business and expand its footprint. One of the first actions Actis took was to improve the operations of the business. That involved bringing all of its entities under one umbrella.

The best of the private healthcare companies in Sri Lanka provide consumers with top service while generating good margins and return on investment to investors. That, in turn, attracts further capital to the sector, explains Rodrigo.

Asiri is not the first investment in Sri Lanka for Actis. The firm previously invested in South Asia Gateway Terminals and Ceylon Oxygen, and plans to continue to put capital to work in the country.

“Sri Lanka is a relatively small economy of about $80B in GDP, with a population of 21 million people,” says Rodrigo. “It continues to grow at a decent clip, and there are some quality private sector businesses with good management that are open to partnering with private equity funds to help them address opportunities that they might not be able to [experience] on their own.”