Despite the obvious difficulties, 2021 was by all accounts another bumper year for mergers and acquisitions (M&As) both in terms of deal volume and deal size.
|Eric Johnson - Counsel, Freshfields Bruckhaus Deringer LLP
For 2021, consumer finance and digital payments topped the M&A trends, with deals such as SMBC Consumer Finance’s $1.4 billion acquisition of a 49 per cent stake in consumer loan provider FE Credit, and VNLife’s $250 million Series B round led by Dragoneer Investment Group and General Atlantic.
However, there was a noticeable lack of large announced healthcare acquisitions in 2021. The relative paucity of healthcare transactions last year does not reflect a lack of interest in this sector by foreign investors, but rather is more likely a reflection of the difficulties of finding suitable acquisition targets and the hurdles many foreign investors encounter in the execution of healthcare deals.
There have been a number of reported transactions led by foreign investors into private hospitals and clinics over the past several years. Private hospitals have a critically important role to play in easing the burden of serious overcrowding experienced by the top-tier urban public hospitals, yet there remain a number of commercial and legal hurdles that can discourage investment.
One key perennial issue for private hospital investments is the prohibition on foreign ownership of any business engaged in pharmaceutical distribution. This is an issue because the majority of pharmaceutical sales in Vietnam still occur in hospitals and the retail pharmacy space is characterised by small independent pharmacies. This means that a private hospital business may need to be restructured.
In order to address this, the government should consider easing the foreign investment restrictions applicable to pharmaceutical distribution, which would not only make private hospital transactions less complex for foreign investors but would benefit the burgeoning retail pharmacy sector as well.
Another perennial issue for private hospitals and clinics is the difficulty in recruiting and retaining qualified doctors and medical staff, particularly in specialised fields. There are several reputational and other benefits that top doctors in Vietnam can enjoy when employed by one of the preeminent urban public hospitals, which can make it difficult for private hospitals and clinics to compete for talent.
The solution to this issue should be a combination of promoting the training and development of Vietnamese doctors and other medical practitioners and the easing of barriers for qualified foreign medical practitioners, including Vietnamese language fluency.
Finally, there remain very few truly national private hospital franchises that operate multiple facilities across the country, with a few very notable exceptions. This tends to be a commercial barrier to certain types of foreign investment, because a single hospital asset may not be as attractive from a growth perspective as a scalable national chain.
Another potentially attractive and relatively undeveloped space for foreign investment in the healthcare sector are laboratory diagnostic businesses. While there are foreign-invested laboratory diagnostic companies that have been in operation in Vietnam for many years, there have been few if any of these businesses that have been able to attract capital from foreign investors which would encourage development of this sector.
The current facility and licensing requirements for these businesses are often difficult to comply with and unnecessary for the reliable delivery of healthcare services. Like many sectors in Vietnam that are or were highly fragmented, the laboratory diagnostic sector is currently characterised by low-volume/low-quality laboratories and quality control issues. It remains to be seen whether this sector will become a feasible/attractive target for foreign investment on a larger scale than it has in the past, but if other jurisdictions in Asia are any guide, it certainly could with the benefit of appropriate and effective regulation that encourages innovation and development in this space.
Another key potential growth area is healthtech. Vietnam’s ambitious and tech-enabled population has produced several impressive tech companies in recent years and there is no reason that the healthcare sector should not benefit from this innovation as well. To its credit, the government has been encouraging healthcare digitalisation as a matter of policy for some years now, including by pushing for the digitalisation of medical records. Also, developments that reduce frequency of hospital visits while delivering effective healthcare services such as telemedicine platforms could help ease the overcrowding burdens faced by major hospitals throughout the country.
Unlike other jurisdictions in Asia, there has not been significant foreign investment activity in healthtech businesses in Vietnam to date. This is likely a result of the fact that businesses operating in this space are not yet big enough to attract foreign investment.
Another factor that affects several other tech-based sectors in this country is the lack of clear regulatory frameworks that provide certainty for businesses and ensure the safety of their consumers.