Carlyle has bought a controlling stake in Adicon, winning a competitive auction for the Chinese clinical laboratory operator.
The private equity firm invested alongside Meinian Onehealth Healthcare, it said in a statement on Monday. Carlyle acquired a 13.5% stake in Meinian Onehealth Healthcare in 2012.
Last month, Meinian subsidiary Haimei Ai Investment Management signalled its intentions to buy a 5% stake in Adicon for $22 million, valuing the entire company at $440 million. It added that Adicon reported a net profit for the January to June period of Rmb40.8 million ($5.9 million) making the equity purchase’s valuation look steep.
The Chinese molecular diagnostics market will grow to $1.8 billion by the end of 2024, according to a report by Research and Markets.
That growth is driven by the rising incidence of cancer and infectious diseases in China. At the same time, the country’s wealthier middle class is able to pay more for early detection of diseases, the consultancy said.
China’s aging population is also more vulnerable to communicable diseases.
Private providers of healthcare could outpace the overall industry's growth. This is thanks to demand for higher quality services than those from public providers, as well as the increasing demand and enhanced nature of corporate employee benefits.
Carlyle is not alone in spotting the trend. Healthcare in China attracted 11% of the investment by number of deals that poured into China in the third quarter, according to Dow Jones’ venture capital report.
A risk for all of these investors is rising valuations as well as a shortage of skilled technicians in China to cope with the growth.
Carlyle could be looking to portfolio company Meinian as a source of steady demand.
Meinian commands over 20% of China’s private medical check-up market, according to an estimate by credit ratings agency Fitch. Meinian finally completed its acquisition of the third-largest provider, Ciming Health Checkup Management, in October last year.
Meinian plans almost to triple the number of check-up centres in the next three years through acquisitions of minority and controlling interests in these centres. By the end of 2020, Meinian may have a network of around 1,100 centres.
Equity for the investment in Adicon came from Carlyle Asia Partners V, Carlyle’s flagship $6.55 billion fund focused on buyout and strategic investments across a range of sectors in Asia Pacific.
Established in 2004, Adicon operates 20 fully owned diagnostic laboratories in China, which offer diagnostic testing outsourcing services to more than 10,000 active customers, including hospitals, clinics and contract research organizations in 28 provinces.
Carlyle has invested more than $11.5 billion of equity in more than 65 transactions in healthcare globally as of June 30. In Asia, Carlyle has invested about $1.5 billion in 10 healthcare companies.
