Developing European nations, with their growing private sectors and personal incomes, could offer the next big opportunity for healthcare investment. That's the hunch of a Washington-based company that specializes in capitalizing foreign infrastructure projects.
The Global Environment Fund, which is one of two partners in a venture capital fund for Latin American healthcare, is trying to launch a similar private equity fund for European ventures.
The $100 million Emerging Europe Healthcare Fund would invest in countries with significant prospects for growth in private-sector healthcare. Its targets are the Czech Republic, Greece, Hungary, Poland, Portugal and Turkey.
The target countries have personal incomes that are rising faster than the European average, according to the fund. They also are expected to become members of the European Union, with the exceptions of Greece and Portugal, which already belong. The process of EU membership is significant, according to the fund, because it requires countries to utilize open trade policies and implement fiscal controls that could limit their ability to finance public healthcare.
"We see more disposable income that's available to go to healthcare at the same time the government deficits are being tamed," says the GEF's managing partner, Jeffrey Leonard.
The GEF already has invested $7 million in a Hungarian diagnostic clinic chain, Budapest-based Euromedic International, through one of its existing funds.
According to marketing materials, the strategy of the Emerging Europe Fund will be to capitalize on private-sector expansion in primary and outpatient care by investing in clinics, diagnostic facilities, laboratories, specialty-care facilities, occupational healthcare providers, rehabilitation centers and medical information management. It will also selectively invest in private hospitals and related industries such as pharmaceuticals and healthcare financing.
The fund's exit strategy is to grow the companies until they reach a critical mass and can be sold through acquisitions or joint ventures with international partners. Management buyouts and public offerings also will be pursued, according to the fund's marketing materials.
The fund, which expects to begin making investments in the fall, would have staff in Budapest, Istanbul, London and Warsaw. A managing director has been selected but not announced.
The GEF is a joint venture partner in the Latin Healthcare Fund, which was formed in 1997 with Advantage Health Corp., based in Woburn, Mass., (April 24, 2000, p. 36).
Since last year, the fund has grown from $60 million to $80 million, nearly all of which has been committed to projects, says Raymond Dunn, the fund's chairman.
The personal connections of Dunn, who was chief executive officer of Advantage Health Corp., an outpatient and rehabilitative services company that was acquired by HealthSouth Corp., helped the Latin fund attract three U.S. healthcare companies among its 10 investors. They are Birmingham, Ala.-based HealthSouth, Minneapolis-based United HealthGroup and Louisville, Ky.-based Humana.
Like the Latin fund, the Emerging Europe Fund hopes to find investors among healthcare operators as well as financial institutions, both in the U.S. and in Western Europe. The minimum investment is $5 million.
It remains to be seen whether U.S. healthcare providers and insurers, which have had only a limited presence in Europe, will want to plunk down capital in untested markets. However, at least one European firm has committed cash. The mammoth British United Provident Association, a London-based insurer that covers more than 4 million people in 180 countries, has agreed to provide $14.5 million to the fund. The BUPA also plans to serve as a strategic partner.
The BUPA has no business in the countries targeted by the fund, but it hopes to use its involvement to learn more about the region and identify business prospects, says Nicholas Beazley, the company's director of group strategy and development.
"We see a number of exciting opportunities particularly as a number of the countries go though a transition from their constrained economic and political environments to much more dynamic and open-market economies," Beazley says.