Central and Eastern Europe’s (CEE’s) healthcare industry is fast emerging as an attractive destination for domestic and international investors. This is the main finding of a survey by Kinstellar and The Lawyer of over 100 corporates, financial investors and advisers that are active in the healthcare sector.

Some 95 per cent of respondents said investment in healthcare in CEE is increasing, while 93 per cent see strong opportunities for international healthcare investors.

Healthcare investment opportunities: doctor shaking hands with a businessman

Rising healthcare spend

Why is investor appetite growing? For a start, spending on healthcare in the region is surging. In Poland, total healthcare expenditure (including government and individual spend) rose 22 per cent in five years to PNL119.3bn ($30bn) in 2016. In Hungary, it soared 25 per cent to HUF2.67trn ($9.5bn). The picture is similar across CEE. Some 88 per cent of respondents reported that spending on healthcare by the general population is increasing across the region.



Healthcare spend is rising in part due to the region’s rapidly ageing demographic, caused by low fertility rates, rising life expectancy and the emigration of young people. In Poland, for example, the number of people aged 65 and over is expected to increase by 3 million during the next 20 years to 8.5 million.

The consolidation proposition 

But rising healthcare spend is only part of the picture. A consistent message from interviewees and survey respondents is that CEE is highly compelling for healthcare investment because there is vast potential for consolidation. Sixty per cent of respondents ranked ‘opportunities for consolidation’ as the main reason for targeting CEE, twice as many as selected ‘strong deal flow’. Ownership of healthcare companies in CEE is highly fragmented, allowing plenty of scope for consolidation though buy-and-build strategies.

Mid Europa Partners’ sale of Alpha Medical, a provider of laboratory testing services in the Czech Republic and Slovakia, to Unilabs in February 2017 highlights the opportunities for private equity investors in pursuing a consolidation strategy. “We completed 27 acquisitions of individual labs in four-and-a-half years,” says Matthew Strassberg, co-managing partner at Mid Europa. “It was all about visiting independent family-run businesses and convincing them to sell up by highlighting how the market is changing and how we were able to procure equipment on more favourable terms. Sometimes the existing owners would roll up into our holding structures as a minority shareholder and sometimes they would choose to cash out.”

Mid Europa eventually sold the firm at a multiple of 2.5 for €400 million: the largest healthcare deal in Central Europe since 2008.

Where will investment flow?

The survey also quizzed the industry on which CEE countries most investment will flow to. Poland is the clear winner, with 53 per cent of respondents expecting the most healthcare investment there. This is more than four times the number that say the same for Turkey (selected by 11 per cent), the Baltic states (nine per cent), the Czech Republic (7 per cent) and Croatia (5 per cent).



Attractive healthcare sub-sectors

The largest share of respondents (28 per cent) expect biotechnology companies to attract the most private investment during the next 18 months. Hungary in particular has established a reputation for proficiency in red biotechnology, which involves the use of organisms for the improvement of medical processes. Combined revenues of Hungarian red biotech and bioinformatics companies have increased 3 per cent annually during the past five years.

Meanwhile, 21 per cent of respondents stated that hospitals will attract the most private investment in CEE’s healthcare sector. Investors find hospitals attractive because they believe they can boost efficiency by improving processes and management quality. This can also be achieved by consolidation.

One example is oncology, which is increasingly receiving funding from CEE governments. Indeed, 6.1 per cent of all oncology clinical study trials across Europe in 2016 were conducted in Hungary. This proportion is larger than that of larger economies such as France (5.4 per cent) and Sweden (3.5 per cent).

Frequently, interviewees also mentioned that there will likely be investment opportunities related to generic drugs. Such drugs are identical to their branded counterparts in their intended usage and effect but are sold at a much lower cost. They currently have a large market share because, unlike branded drugs, they have no expensive research and development costs. This is attractive to both governments and the general population.



Regulatory environment – challenge and opportunity

Despite the enormous opportunities, investing in healthcare in CEE is not without risk. The complex regulatory environment is an obvious concern: 83 per cent of respondents ranked it among the top three challenges and 38 per cent placed it first.

Why is this? Part of the difficulty relates to the unpredictability of state funding to certain healthcare sectors. Opportunities for healthcare investors are often directly linked to government funding and support for specific areas of healthcare. In the past, investors have been caught out by sudden cuts to funding as governments switch focus to other sectors.     

“There are examples of private investors investing in assets that operate in highly attractive healthcare niches, such as cardiology, vascular surgery or cancer care, but are suddenly faced with significant tariff and funding cuts that dramatically change the operating environment,” says Pawel Czarnowski, investment director at Montagu Private Equity. “Being able to foresee those changes is critical but very difficult.”      

That said, certain aspects of CEE’s regulatory environment, such as ownership law, are actually more flexible and therefore more investor-friendly than in Western Europe and the US. According to Stephan Rau, partner at McDermott Will & Emery, favourable clinic ownership regulation is a big attraction.

“In contrast to Western Europe and the US, all of the restrictions surrounding the ownership of clinics generally do not exist in CEE. In CEE, you can just buy the labs and there is no issue concerning the corporate practice of medicine doctrine or other regulatory restrictions. It’s positive for investors,” he says.     


CEE’s healthcare industry is starting to attract interest from corporates and financial investors worldwide. Government and individual spending on healthcare is rising and there are vast opportunities for consolidation. The challenges of investing in the region have been well documented. But the overwhelming feedback from survey respondents and interviewees is that these challenges can be overcome with careful planning and by seeking specialist advice.

About the research

This article is an extract of a larger research report written by The Lawyer Research Service and Kinstellar. The report focuses on the emerging opportunities and challenges of investing in healthcare in CEE. The report is based on an online survey of over 100 investors, advisers and corporate executives conducted in July and August 2017.

If you are interested in commissioning a piece of research with The Lawyer please contact Mark Philbrick on 0207 970 4647 for bespoke thought leadership reports and Thomas Sturge on 0207 970 4941 for bespoke data projects.