As chief executive and operating partner of TVM Capital Healthcare, Helmut Schuehsler and Orhan Osmansoy explain why it makes sense to take a longer-term view of healthcare.
TVM Capital Healthcare stands out in the private equity world as a genuine company builder. While many players come in with leverage and try to optimise what they find within five years, TVM has held some of its assets for a decade.
As a strategy, it has worked well. Focused on Dubai, its portfolio includes major players like fertility operator Bourn Hall International, which has two clinics in the UAE, one in Dubai and one in Al Ain; Cambridge Medical & Rehabilitation Center (CMRC), the UAE’s leading dedicated medical care and rehabilitation service provider; Manzil Healthcare Services, the largest standalone home healthcare services and disease management provider in the UAE; and Amecath Medical Technologies, a medical devices company which has a focus on catheters, mainly produced in Egypt.
TVM’s first funds, TVM Healthcare MENA I and MENA 2, closed in 2010 and 2015 respectively. But it has recently decided to push into Southeast Asia with an office in Singapore as well as plans for a first Southeast Asian fund. It and MENA 3 are likely to be around US$200m in size, though a final size and close date are not expected until markets normalise.
Here, they talk to HMi about what the investment landscape in Gulf Cooperation Council countries might look like post-Covid-19, why they prefer a longer timeframe for investment than traditional private equity houses, and where they see opportunities in Southeast Asia.
The following transcript of HMi’s interview with Helmut Schuehsler and Orhan Osmansoy has been edited for brevity and clarity.
HMi How are you preparing for a post-Covid-19 world?
HS There is no post-Covid world. It will be here to stay like measles, like polio and like influenza. The question is how long will the economic fallout last?
This obviously has two main components: one is social distancing and the other part is travel.
We will have therapeutics no sooner than in three months from now, very likely by the end of the year. But I don’t foresee a vaccine before the end of 2021. This will run its course like a wave through the entire world. Internally, restrictions will be slowly lifted, but travel restrictions will stay in force for quite some time.
The big question is will people want to travel even if it is allowed? My suspicion is that very few will want to.
HMi What does that mean for deals? What kind of dynamic of deal flow are we likely to see?
HS The one sector that is going to go through a tremendous upswing is digital health – tech, AI, anything where you can get through healthcare without touching somebody or without somebody actually having to move to a hospital or clinic.
We expect to see a tremendous upswing in primary care networks, integrated care, digital integrated care solutions, and home care.
We’re already seeing this happen. That will be the major change in the short term.
OO This outbreak has only underscored the need for continuous healthcare investment. What you’ve also seen is that the quality and the setup of various healthcare infrastructures actually makes a substantial difference in mitigating the impact of the virus.
Weaker healthcare systems will have to step up and will need support to do so. This is where the private sector comes in to sit alongside the public sector. And from our perspective as private investors, this creates opportunity. It underscores the role of a [company like] TVM working alongside the authorities in the UAE or in Saudi Arabia to uplift the infrastructure through the enactment of digital health.
We move people out of hospitals into long term care facilities and subsequently to their homes.
Underneath the umbrella of home health and home care and patient support systems, digital health is a disruption which is becoming more topical with Covid.
HMi Valuations have skyrocketed over the past few years. Do you expect that to change?
HS Very few deals are being closed at the moment. If you talk to the investment bankers, they will tell you that they have a lot going on, but there is no urgency.
Everybody is taking a wait-and-see position.
Our expectation is that valuations will come down except for the best assets. We have always been interested in addressing fundamental problems that people have, such as fertility for example.
Fertility is an increasingly large problem not only in Western societies but also in India. Is it a disease? In some cases, yes. In some cases, no. But it’s essential for the well-being of families. We focus on the big topics.
HMi What drives your investment decisions?
OO We’re looking at markets that are fast-growing. If you look at the broader MENA region together with Southeast Asia, it’s home to 3 billion people.
This population is growing and ageing and is now subject to non-communicable diseases due to urbanisation, lifestyle changes, diets and so on. That’s the target segment.
Healthcare itself is going through interesting transformations. We’ve mentioned digital health, and these novel technologies will have a meaningful impact on all stakeholders.
Ultimately, they’ll make healthcare more accessible, cheaper, faster, more transparent, more targeted, and ultimately more self-managed.
This creates an opportunity for TVM Capital Healthcare. For us, it combines the potential for some interesting returns on one side and having an impact – doing good – on the other.
HMi Private equity is traditionally focused on three to five years, but you have held your portfolio for longer and Bourn Hall for almost a decade. Why?
HS Good companies do not get built in three or four or even five years. Good companies get built over time.
If TVM Capital Healthcare could raise a 15-year fund, we could build a very substantial business, even from a startup. When we came to the region, we looked at the healthcare market and asked ourselves: ‘what is different here?’
Across the region, in Abu Dhabi, Dubai and Oman, there was no post-acute care, no rehabilitation, hardly any physical therapy or home care apart from a couple of mom and pop shops.
There was no focus on this hugely important part of the healthcare system. We wrote the business plan, we put the funding syndicates together and we partly ran it ourselves in the early years.
HMi How much damage has the collapse of NMC Health done to the sector?
OO Just like Abraaj two years ago [Abraaj Group, a buy-out firm based in Dubai, collapsed in 2018], this underscores the need for proper governance. It’s obviously a bit of a shame that a business like this is going through this challenge as we speak. But from our perspective, it underscores the point that TVM Capital Healthcare upholds the best-in-class compliance and governance, policies and procedures.
If you look at our businesses, whether it’s Cambridge Medical and Rehabilitation Center or Bourn Hall, whether it’s Manzil Healthcare Services or Amecath Medical Technologies, they all have the highest accreditations. That underlines how we operate. It’s all about alignment, how we align ourselves as a fund with the managers of these businesses.
The beauty about coming in early and building these businesses from the ground up, allows us to create a DNA for these businesses that doesn’t feed off inertia or founder legacy. It’s our ethos that by upholding ethical standards and compliance standards and by not cutting corners that you only do good.
HMi Why is TVM Capital now shifting its attention to Southeast Asia?
HS Southeast Asia is an area with about 700 million people and 11 countries and healthcare systems that need a lot of development.
There is tremendous demand. But it’s different from the GCC where countries are small but affluent. You have to think long and hard about what kind of business models you can actually build successfully in Malaysia, Thailand or Indonesia on one hand versus Saudi Arabia and the UAE on the other hand.
The answers will be partly overlapping and partly completely different.
Our plan is to establish TVM Capital Healthcare as a platform across Asia to develop healthcare infrastructure and to provide an increased and better quality of life to patients. We feel that there is a tremendous opportunity with ageing populations and fast-growing economies.
Since 2000, almost all of the Southeast Asian economies have grown by at least 5% per annum. We are looking for relatively small companies with a business model so that we can see what they’re doing. We are not asking for them to have US$5m in revenues.
If a smart business has US$2m in revenues and is the loss-making we could invest in it and we would stick with it for eight years so that we could really build a substantial company. Then we would sell it on to people who have fund sizes of US$600m to $1bn – the TPGs and the KKRs of this world.
As a small, highly specialised healthcare growth capital investor, we try to build the companies that we can either take public or we can sell to the larger private equity players.
HMi What are your priorities for the next 12 months?
OO We looking to shore up any liquidity needs that our portfolio companies have.
We’re also trying to be a bit pre-emptive here, trying to understand what the implication of this tsunami is, helping our businesses drive working capital harder and focus on where the money needs to be invested as a priority.