This article first appeared in The Edge Malaysia Weekly on September 16, 2019 - September 22, 2019

HONG Leong Group, controlled by billionaire Tan Sri Quek Leng Chan, aims to make healthcare one of its core businesses, leveraging the Columbia Asia hospitals in Southeast Asia that it just acquired from US investment firm Columbia Pacific Management Inc for US$1.2 billion.

Finance director Soon Seong Keat says Hong Leong Group believes there is a lot of potential in the healthcare market, especially the segment Columbia Asia is serving in Southeast Asia.

“Columbia Asia is leveraging the middle to upper middle-income market here. It has good scale and an established brand. The asset has growth momentum and, together with the management, we will continue to grow the brand in Southeast Asia,” he said at the signing ceremony last Friday.

The acquisition does not involve any public-listed entities owned by Quek.

Hong Leong Group and global alternative asset firm TPG have entered into a definitive share purchase agreement with Columbia Pacific Management to acquire Columbia Asia hospitals in Southeast Asia. The deal is expected to close by the end of the year.

Under the deal, Hong Leong Group and TPG will acquire 17 Columbia Asia hospitals and one clinic in Southeast Asia. They are located in Malaysia (12 hospitals), Indonesia (three hospitals) and Vietnam (two hospitals and one clinic). The 11 Columbia Asia hospitals in India are not part of the transaction and will continue to operate with no changes in ownership.

The announcement confirms The Edge Financial Daily’s story last Thursday that Hong Leong Group and TPG had won the bid to acquire the assets of Columbia Asia Group in Asia, except for India, for US1.2 billion.

Soon says the investment is a “very substantial” one for the group because of the potential that it brings to the entire group. However, a public listing is not on the cards yet as Hong Leong Group and TPG want to continue to grow the business.

“We look forward to our partnership with TPG, which has a stellar track record as a healthcare investor, as well as to working closely with Columbia Asia Hospitals’ management team to accelerate its next phase of growth,” he says.

When asked whether the objectives of Hong Leong converge with those of TPG, Soon says he very much hopes so. While TPG might look at exiting the investment after four years, the Hong Leong Group does not look at its investments on a specific timeline basis.

During a media briefing last Friday, Nate McLemore, managing director of Columbia Pacific Management, said the investment firm will retain a minority interest in the joint venture.

Asked what that means for the joint acquisition, TPG co-managing partner Ganen Sarvananthan declined to comment, saying that the joint acquirers are private companies and are therefore not required to divulge such information. What is understood is that the current top management of Columbia Asia Hospitals in Southeast Asia will continue to run the business. However, its expansion plans will be reviewed by the new owners, says Ganen.

Columbia Asia Hospitals currently operates 1,500 beds across Southeast Asia. It plans to add another 900 beds in Malaysia, Indonesia and Vietnam over the next three to four years. These will come from nine projects in both greenfield and brownfield assets, says Dilip Kadambi, interim group CEO and group CFO of Columbia Asia Group.

“The group’s revenue has been growing at a compound annual growth rate of 20% over the last few years and we expect the business to continue to grow at the same rate over the next few years. We will open one or two hospitals a year,” says Dilip.

Columbia Asia Hospitals’ journey in Southeast Asia started in the mid-1990s, when founder Daniel Baty decided to expand his senior care business into this region. However, he found he was too early in promoting the senior care business in Southeast Asia. But he saw that the middle to upper middle-income market in Southeast Asia was underserved in terms of quality private healthcare services. That was when the first Columbia Asia hospital was set up in 1998, in Seremban, Negeri Sembilan.

Fast forward to 2019, the Columbia Asia Hospitals brand is among the most recognisable private healthcare services brands in Southeast Asia, especially in Malaysia.

According to McLemore, the push for Columbia Pacific Management to find a buyer for its Asian business was that some of its investors, who had been there for about 10 years, wanted to cash out. The search began early this year.

It was reported that the initial bidders included Sime Darby Healthcare Bhd and other global private equity firms such as KKR, CVC and Carlyle, apart from Hong Leong Group and TPG.

Asked whether the bidding process was fierce, McLemore declined to comment, except to say that TPG and Hong Leong Group are a good fit for Columbia Asia Hospitals as they have a good understanding of the private healthcare business in Southeast Asia. “We have known Ganen for over 20 years, since he was with Khazanah Nasional Bhd. He is probably the best person when it comes to healthcare investments in Malaysia.”

On why the deal does not include the Indian operation, Ganen says the Hong Leong Group is not familiar with the market and had said that it just wanted to focus on the Southeast Asian assets. “As for TPG, we already have exposure to the Indian private healthcare business through the Manipal Hospitals, so we do not wish to increase our exposure to that market.”

Morgan Stanley Asia (Singapore) Pte acted as exclusive financial adviser to Columbia Pacific Management on the transaction.

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