Issued by Aureos
The Africa Health Fund (the Fund), which was launched in June this year, has made its first investment, acquiring a stake in the Nairobi Women's Hospital for US$2.66 million.
The Africa Health Fund is managed by Aureos Capital, a leading private equity fund management company specialising in investing in small to medium-sized businesses in emerging markets.
The Fund is backed by the International Finance Corporation (IFC), the African Development Bank, DEG and the Bill & Melinda Gates Foundation, who have jointly invested US$57 million. The target is to raise a total of US$100 million, with a final close in 2010.
The objective of the Africa Health Fund is to increase access to, increase affordability and increase quality of health-related goods and services for underserved Africans, especially those at the bottom of the income pyramid, simultaneously providing investors with good long-term financial returns.
Nairobi Women's Hospital (NWH) provides health care services for women and children. It focuses on providing inpatient, outpatient and specialized services for women, including antenatal, gynaecology, obstetrics, breast cancer detection and surgery. It also has what is believed to be the first Gender Violence Recovery Centre in East Africa.
A proportion of the sum invested in NWH will be used to help fund a management buyout, with the balance going to the expansion of facilities such as clinics, beds, ambulances and operating theatres in the East Africa Region.
Sev Vettivetpillai, CEO of UK-based Aureos Advisers says: "Whilst we were setting up a unique HIV/AIDS risk management programme for our East African portfolio companies in 2008 we started to realise just how fragmented and under-capitalised the healthcare sector is in Africa."
"Many of the causes of the high costs and inefficiencies of the healthcare sector in Africa are essentially business issues that we hope the Fund, and the input of Aureos executives, will help to resolve."
"We believe the Africa Health Fund will make a valuable contribution to helping low-income Africans get access to affordable, high-quality healthcare services whilst at the same time providing satisfactory returns to our investors."
"We are delighted to have completed this investment in NWH and look forward to helping them reach a larger portion of the underserved population in East Africa."
"Aureos has one of the longest-standing track records of private equity investment in Africa and an unparalleled expertise investing in small to mid-cap business and in healthcare."
"Through the Africa Health Fund, we look forward to helping populate Africa's private healthcare sector with growing, profitable businesses, well positioned to attract further domestic and foreign investment."
Dr Sam Thenya, Group CEO of NWH, comments: "We are delighted to have attracted the backing of the the Africa Health Fund and to receive the support of Aureos. Their experience in the African health sector will help us better reach those in need."
Healthcare in Africa and private equity
According to a key IFC study "The Business of Health in Africa" 60% of healthcare financing in Africa comes from private sources and about 50% of total health expenditure goes to private providers. The report says that "the vast majority of the region's poor people, both urban and rural, rely on private healthcare."
Davinder Sikand, Regional Managing Partner of Aureos in Africa says: "The provision of capital to SMEs operating in the health sector in conjunction with professional private equity support will certainly increase the efficiency of the African health market. This will benefit sections of the population that previously had asymmetrical or no access to vital healthcare goods and services."
"Aureos is well aware of the effects that health issues and under-resourced health services have on businesses because we work very closely with our investee companies. The economic, productive and emotional cost of workforces in poor health can be devastating on businesses. We have regularly helped our investee companies to devise remedial strategies."
In 2007, Aureos undertook a multiple stage analysis* of healthcare provision in East Africa, developing a thorough understanding of where the critical deficiencies in the African healthcare system lie. Given its extensive experience working with dynamic SMEs in emerging markets, Aureos identified how SMEs can plug the gaps in the African health market.
The Aureos study showed that much of the African healthcare sector suffers from severe structural and systemic bottlenecks. There is severe market fragmentation and inadequate, inefficient distribution channels, high manufacturing costs, price distortions in the market, lack of effective supply chains, absence of economies of scale, low productivity levels and in many cases, dependence on large international health providers.
Aureos also broadened its research into the structure and segmentation of the African healthcare market. In doing so, it has determined trends in consumer demand, appropriate product pricing and market gaps which speak to the investment opportunities available.
Aureos has also identified market failures as well as the scope of the distribution chains as challenges in the environment. In drafting the strategy of deploying the Africa Health Fund, Aureos expects to work in innovative new partnerships with public and private organisations, entrepreneurs as well as domestic and international regulators.
Davinder Sikand adds: "We are very well placed to support solutions to the issues we have come to understand in the African Healthcare market. Having worked in emerging markets for almost two decades, Aureos understands how production facilities, distribution systems and networks can be mobilised to reach under-served and low-income groups. This particularly applies in domains vital to healthcare, such as healthcare financing, medical manufacturing, healthcare training, telemedicine and pharmaceutical manufacturing. The Africa Health Fund is an innovation approach to deploying capital, professional expertise, technology and a local presence of a fund manager with a global network."
*Supported by the Norwegian Investment Fund for Developing Countries (Norfund)
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