Private equity giant KKR & Co. is tapping into China’s growing market for health care by creating a new hospital investment and management company.
The firm announced late Tuesday that it has formed SinoCare Group to provide health care to patients in China. SinoCare’s strategy will be to acquire, build out, and consolidate hospitals, according to the announcement.
“The deal fits firmly in the range of KKR's past comments around how they like to invest in China,” Patrick Davitt, an analyst at Autonomous Research who covers the private equity firm, said by phone Wednesday. “Its strategy in China has always been investing in companies that benefit from the emerging middle class.”
KKR is among a growing number of private equity firms targeting Asia. The New York-based firm closed its third fund in the region in 2017 and has since been deploying that capital. The SinoCare investment was made through KKR's Asian Fund III, according to the announcement.
In the same announcement, KKR said that SinoCare has acquired a majority stake in Chinese hospital management company, HeTian Hospital Management. The deal, according to KKR, will help the private health-care provider develop new practice areas and grow to serve more patients.
“As China faces a shortage of medical professionals and clinics, the role of private hospitals is becoming increasingly important,” said Dr. Li Fangjun, founder and chairman of HeTian, in the announcement. “KKR has a long-standing reputation for bringing global best practices to its partners in the health care industry internationally, in addition to supporting Chinese entrepreneurs.”
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China’s health-care industry operates differently from the U.S. market. Generally, health insurance is publicly provided and financed by local governments, according to the Commonwealth Fund. But an increasing number of people in the country are purchasing private health insurance plans.
KKR plans to support HeTian’s expansion by focusing on making acquisitions of health-care providers in “third- and fourth-tier” cities in China, according to the private equity firm's announcement. Davitt said the country's population isn’t being served by existing local resources.
“There’s a need for high-quality services for the middle class that hasn’t been served by local companies,” he said.
China’s government is encouraging companies to extend more medical resources to these lower-tier cities, which have few hospital beds for a large population, according to KKR.
“This is a pivotal time for health care in China given the growing demand for quality medical services and treatments nationwide,” said Paul Yang, chief executive officer at KKR Greater China, in the announcement. “We’ve seen first-hand some of the issues facing Chinese patients and are dedicated to supporting their needs through the launch of SinoCare and through the platform’s initial investment in HeTian.”
A spokesperson for KKR declined to comment beyond the announcement.