Specialisation sees healthcare investment return to Poland

The healthcare sector has consistently ranked among the top three sectors for private equity investment in Poland. Historically, GPs have focused on generalist healthcare providers – Krokus Private Equity's investment in Polish general hospital Polmed in 2009 and Mid Europa's 2007 investment in Lux Med, for example. But a glance at 2013 statistics from unquote" data suggest the sector's popularity is waning, nudged off the podium and into line with tourism, hardware and industrial engineering.

However, Enterprise Investors' recent commitment to an oncology project suggests the sector still has something to offer, but specialisation is the order of the day. The GP committed €10.5m from Polish Enterprise Fund VII to the construction of a radiotherapy centre at Tomaszów Health Center, taking its total investment in oncology to €25m.

Special interest
"General hospitals are no longer especially interesting for private equity houses, but specialised clinics with attractive margins are a strong opportunity," says Michal Karwacki, attorney-at-law and newly appointed head of the private equity practice at Squire Patton Boggs, Warsaw. And Michal Rusiecki, head of healthcare investment at Enterprise Investors, agrees: "Oncology is currently the area where there is the biggest visible gap between what a well-organised and well-funded future could look like, compared to how it stands today. Poland has taken huge strides in dealing with the other major killer – heart disease – where the survival rate of heart attacks has reached the European level, also thanks to a massive inflow of funding into the segment." Advent International's 2011 investment in American Heart Poland exemplifies this particular segment's attraction for earlier vintage funds.

"The big question is how quickly that gap between present and future can be closed," Rusiecki says. "That obviously depends on the ability of the Polish government to fund cancer care. Generally our view is that healthcare is a very important determinant of quality of life, so as Poland's economy improves the government will seek to improve access to, and standards of, care."

Improving cancer care is understood to be high on the list of governmental priorities in Poland, where the survival rate is just 30%, below the 50% rate seen in the rest of Europe, according to Rusiecki. Despite the scope for improvement, the space is not without challenges; a recent moratorium put on the regular tender for speciality areas by the national health fund – a cycle upon which Enterprise Investors had pinned its hopes when building its latest radiotherapy centre – may see the GP reap returns later than anticipated. "Our revenue picture is very much different to what we originally assumed; we still believe in the long-term prospects but the short-term is different," says Rusiecki.

Despite the tantalising long-term outlook, challenges await those looking to invest in the sector. Though exits are likely to characterise the space this year, valuations are high. Both American Heart Poland and Polmed, bastions of the first wave in Polish healthcare investment, are expected to be put on the block soon, presenting potential opportunity for hungry buyers.

"The biggest challenge in the healthcare market is seller expectation, which is very high," says Karwacki. "We have seen transactions where sellers are exiting with margins above 15x EBITDA. It can be very difficult." And entrants may have to contend with a new breed of buyer. "The wholesalers that distribute pharmaceuticals are competing with private equity at the moment, because the list of state-subsidised drugs is not as long as it used to be," explains Karwacki. "As a result, pharma distributors are looking for sectors in which they can grow, so it is quite common that in the auction processes regarding the sale of private healthcare clinics, you see these wholesalers as the main competitors to private equity and trade buyers." But is the competition worth it? According to Karwacki: "You have to learn long-term. There are 38 million citizens in Poland, and people are getting richer. They will want private healthcare," he says.

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