Betsy Henderson speaks with Femi Ogunjimi, a partner at Lagos-based private equity firm CardinalStone Capital Advisers, about healthcare opportunities and trends in Nigeria and beyond.

CardinalStone recently invested $6 million in Nigerian healthcare group AfyA Care. Explain the motivation for this investment.

Although we at CardinalStone Capital Advisors (CCA) are generally sector-agnostic, healthcare is one of our preferred investment sectors. Prior to joining CCA, as an investment banker I had worked with the founders of AfyA Care when they started AXA Mansard Health Insurance, which is now the largest healthcare insurance provider in Nigeria. I had firsthand experience watching them grow that business from scratch to become number one, and I was interested to see their vision for AfyA Care.

One of the biggest problems in Nigerian healthcare is a lack of scale in terms of hospitals and related businesses. The largest private hospitals in Nigeria have 250 beds at most, whereas private hospitals in China and India have upwards of 2,000 beds. Those hospitals are operating at a scale that allows them to provide quality healthcare at an affordable cost.

So, the idea behind AfyA Care is a strong management team that can organically or through acquisitions grow an integrated healthcare platform and become a sector leader

What is the current state of the private hospital industry in Nigeria, and how does AfyA Care fit within this context?

There’s a wide customer segment in this landscape. There’s 50% of what you would call the “working poor” – people who earn an income, but it’s below the poverty line or they have limited resources. Then there is another 25% of what people would call a middle-income class, and then probably at the very top, another 10%. The 10% at the top typically prefer to do non-immediate healthcare services abroad; that’s why we have $1.5 billion or so of healthcare tourism here in Nigeria.

Regarding the players in this field, there are government-provided primary healthcare facilities and a large number of small clinics and institutions established by individual doctors. As a result, most healthcare institutions have a capacity of five to 50 beds. In Nigeria, there are less than 10 private hospitals with more than 150 beds.

So you find there is a gap in terms of scale for private healthcare. AfyA Care has tried to build an integrated platform that not only caters to low- and middle-income customers, but also the high-end patients. They cater to low and medium-end patients through their R-Jolad brand, under which they have acquired three hospitals and will have 215 beds by the end of the year. At the same time, they are in the process of building a hospital that will focus on serving more higher-end consumers.

AfyA Care also has a health insurance business, called Bastion Health, which started about a year and half ago and is growing fast. This helps the AfyA Care team better understand the customer demand; the ultimate idea is to have supply and demand side together in the same platform, and then grow that model.

Another of AfyA Care’s business lines is Octosoft, a technology suite that improves efficiency in healthcare delivery through providing services such as scheduling, online access to doctors, and digital record-keeping. When they started acquiring hospitals, the AfyA Care team noticed that a lot of institutions didn’t have the technology backbone needed to run efficiently, so they built a platform that could both provide technology for AfyA Care’s institutions as well as be sold to external parties.

How competitive is this private healthcare segment?

There are many other hospitals in Nigeria – both government-sponsored and private hospitals – but there’s still a wide enough net and level of local demand that I don’t think any of the competition or even AfyA Care can sufficiently meet.

Beyond this investment, what other areas of Nigeria’s healthcare market are you most enthusiastic about from an investment perspective?

I’m excited about the opportunity to provide healthcare services locally that people would otherwise have to travel abroad to receive. There is also a lot of potential in specialised medicine, as data shows that the most common diseases are shifting over time. As people live longer, infectious diseases are becoming less prevalent and chronic conditions such as high blood pressure, cancer, etc. are becoming more common. There is a lot of investment potential in these areas, particularly in pathology, cardiology, and cancer-related care.

What are the most challenging aspects of investing in Nigeria’s healthcare industry?

One of the most challenging aspects of investing in Nigeria’s healthcare sector is regulation. Across the industry, there is a need for improved regulation and accountability. For example, we often see people going to pharmacies and self-medicating with drugs that should only be available with a prescription. Additionally, there are instances of people performing medical procedures that they are not qualified to do. To reduce mortality rates, it is essential to have strong regulation and to enforce those regulations so that people can seek medical services from places that are properly qualified.

Highlight some of the major healthcare trends in the region.

From a big-picture perspective, there’s a heightened state of health consciousness. A lot of people are thinking more about leading healthy lives, preventing rather than treating illness, and being more aware of the excesses they expose their bodies to and the impact on their health.

To give you an example, we have another investment in the healthcare space called iFitness (Read more: A chain of gyms in Nigeria – interview with the entrepreneur behind iFitness), which today is the largest gym chain in West Africa. When we made that investment about three years ago, it had about five locations with 3,000 members, whereas today it has over 20,000 members and 18 locations. These are people who spend a lot of time paying attention to their health, working out, and trying to be healthy.

We have also explored investments in oncology and continue to consider opportunities in diagnostics, pharmaceutical technology, and other areas that use technology to improve access to healthcare.

In the health insurance sector, there is a shift towards serving smaller entities and the retail market, as the demand from larger corporations has been met and the market has become saturated.

Are there other examples of particularly successful or interesting businesses that you’ve seen in the healthcare sector in Africa?

One I find interesting is AXA Mansard Health Insurance – started by the same team now behind Afya Care – which became a market leader in six to seven years. They have been able to provide high-quality service in the healthcare insurance space, understand the market, and provide insurance to a large number of people who didn’t have it before.

---

CardinalStone Capital Advisers partner Femi Ogunjimi’s contact information

Contact details are only visible to our Monthly/Annual subscribers. Subscribe here.