The consolidation of several healthcare assets under US private equity firm TPG Capital and the Hong Leong Group has apparently received regulatory approval. The new entity is set to include prominent healthcare facilities such as Columbia Asia Healthcare, Ramsay Sime Darby Health Care, Beacon Hospital, Cardiac Vascular Sentral Kuala Lumpur (CVSKL), ALTY Orthopaedic Hospital, and PJ Integrated Centre of Advanced Surgery and Oncology (Picaso).
This conglomerate aims to list on Bursa Malaysia by 2026, with an estimated valuation exceeding RM20 billion, positioning it as one of the largest listed healthcare groups in Malaysia. The inclusion of healthcare facilities from Malaysia, Indonesia, and Vietnam underscores the entity’s expansive regional footprint.
TPG Capital, previously known as Texas Pacific Group, is a leading global private investment firm founded in 1992 by David Bonderman, Jim Coulter, and William S. Price III. With headquarters in San Francisco and Fort Worth, TPG manages over $100 billion in assets across a variety of sectors, including healthcare, technology, and consumer products.
The firm has a strong track record in healthcare investments, emphasising strategic consolidation and operational improvements. TPG has vast global presence with a footprint spanning North America, Europe, Asia, and Australia, TPG leverages its global network to drive growth and value creation in its portfolio companies. TPG is known for its hands-on approach, working closely with management teams to optimize performance and achieve strategic goals.
Background and Key Acquisitions:
1.Columbia Asia Acquisition (2019):
- TPG Capital and Hong Leong Group acquired Columbia Asia’s hospitals in Southeast Asia for US$1.2 billion.
- This acquisition excluded Columbia Asia’s hospitals in India but included facilities in Malaysia, Indonesia, and Vietnam.
2.Ramsay Sime Darby Health Care (RSDH) Acquisition (2023):
- Columbia Asia Healthcare purchased RSDH from Sime Darby Bhd and Ramsay Healthcare Ltd for RM5.7 billion.
- RSDH operates four hospitals in Malaysia and three in Indonesia.
3. Potential Listings and Mergers:
- TPG Capital previously considered privatizing KPJ Healthcare Bhd in collaboration with its largest shareholder, Johor Corp, though this did not materialize.
- TPG recently showed interest in Island Hospital Group in Malaysia, but Sunway Healthcare might acquire it instead, with the deal potentially valued at RM3.5 billion.
The Pros and Cons of Public Listings in the Healthcare Sector
The decision to take a healthcare company public is a significant milestone that comes with a blend of opportunities and challenges. As healthcare entities like the newly consolidated TPG Capital and Hong Leong Group prepare for potential public listings, it is crucial to understand the advantages and disadvantages that come with being a publicly traded company. Here I would like to explore the pros and cons of healthcare public listings, shedding light on how such decisions can shape the future trajectory of healthcare organizations.
Pros of Healthcare Public Listings
1. Capital Access
One of the most compelling reasons for healthcare companies to go public is the access to substantial capital. Public markets offer a vast pool of resources that can be tapped into for expansion, innovation, and improvements in healthcare services. For example, raising funds through an Initial Public Offering (IPO) allows healthcare providers to invest in cutting-edge medical technologies, expand their facilities, and enhance patient care services. This influx of capital is crucial for maintaining competitive advantage and driving long-term growth in a sector that is both capital-intensive and rapidly evolving.
2. Enhanced Visibility and Credibility
Being publicly listed significantly enhances a company’s visibility and credibility. This increased profile can attract more patients and open doors to potential partnerships or acquisitions. Publicly traded healthcare companies often enjoy greater trust from both patients and partners due to their perceived stability and accountability. Additionally, listing on a reputable stock exchange like Bursa Malaysia can bolster a company’s reputation and facilitate entry into new markets or services.
3. Liquidity and Valuation
Public companies benefit from improved liquidity, allowing for easier buying and selling of shares. This liquidity not only makes it easier for investors to trade the company’s stock but also provides the company with a powerful tool for acquisitions. Shares can be used as currency to acquire other companies or to incentivize key stakeholders. Moreover, being publicly listed often results in a higher valuation as the market assesses the company’s growth potential, giving it an advantageous position in mergers and acquisitions.
4. Regulatory and Operational Transparency
Listing on a stock exchange requires adherence to stringent regulatory and operational standards. This can lead to better governance and operational efficiencies as companies must implement robust systems and controls to comply with these requirements. Enhanced transparency can also build investor and customer confidence, reinforcing the company’s commitment to high standards of corporate governance and ethical practices.
5. Employee Incentives
Publicly listed companies have the advantage of offering stock options and other equity-based incentives. These incentives are critical for attracting and retaining top talent in the competitive healthcare industry. Equity compensation aligns employees’ interests with those of shareholders, fostering a culture of ownership and long-term commitment to the company’s success. This can be particularly advantageous in healthcare, where the expertise and dedication of staff are paramount to operational excellence.
Cons of Healthcare Public Listings
1. Market Pressures and Short-Term Focus
One of the significant downsides of being publicly listed is the relentless pressure to meet quarterly earnings expectations. This focus on short-term financial performance can detract from long-term strategic goals. Healthcare companies might be forced to prioritize cost-cutting measures or short-term profitability over crucial investments in research and development or patient care initiatives. Such pressures can lead to suboptimal decisions that might undermine the company’s long-term sustainability and growth.
2. Disclosure and Compliance Costs
Public companies must adhere to comprehensive disclosure and regulatory requirements, which can be both costly and time-consuming. The need for regular financial reporting, compliance with securities laws, and adherence to corporate governance standards demands significant administrative resources. These requirements can divert focus and funds from core business activities, presenting a considerable burden, especially for smaller healthcare entities.
3. Vulnerability to Market Volatility
Publicly listed companies are subject to the whims of the market. Stock prices can fluctuate significantly due to market volatility, economic conditions, or changes in investor sentiment. For healthcare companies, whose valuations might be closely tied to regulatory changes, public health policies, or clinical trial outcomes, this can introduce a high degree of financial instability. Market volatility can also affect investor confidence and complicate strategic planning.
4. Loss of Control
Going public often means founders or initial owners may lose significant control over business decisions. Shareholders and external investors gain influence through board positions or voting rights, potentially leading to conflicts regarding the company’s strategic direction. For healthcare companies, which often require specialized knowledge and long-term commitment to patient care, this loss of control can be particularly challenging if shareholder interests are not aligned with the company’s mission and values.
5. Increased Scrutiny
Public companies operate under the constant scrutiny of investors, analysts, and the media. This scrutiny can intensify during periods of underperformance or operational challenges, placing additional pressure on management to deliver consistent results. In the healthcare sector, where outcomes and services are critical, increased scrutiny can be both a motivator for maintaining exacting standards and a source of significant stress and operational pressure.
The decision to go public is a transformative step for healthcare companies, offering a pathway to substantial capital, enhanced visibility, and strategic growth opportunities. However, it also comes with significant challenges, including market pressures, regulatory burdens, and potential loss of control. As entities like the TPG Capital-led conglomerate and eventually Sunway Healthcare navigate their paths towards public listings, weighing these pros and cons will be crucial in shaping their future strategies and ensuring sustainable success in the competitive healthcare landscape.
Dr Betty Teh, Editor-in-chief/Founder
