July 24, 2013
Interviewed by: David Snow
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Healthcare Investing in Mexico

Mexican consumers are vastly underserved in the realm of healthcare, according to Harry Krensky of Discovery Americas, who describes the private equity opportunity in the country as well as the strategy of his private equity firm of investing in companies that provide health care as well as education services.

Mexican consumers are vastly underserved in the realm of healthcare, according to Harry Krensky of Discovery Americas, who describes the private equity opportunity in the country as well as the strategy of his private equity firm of investing in companies that provide health care as well as education services.

Healthcare Investing in Mexico

A Privcap Conversation with Harry Krensky of Discovery Americas

What are the most important factors driving Mexican private equity today?

Krensky: Mexico private is driven right now by a couple of very important factors. So for many years, Mexico was a neglected market so people preferred to talk about Brazil much more than Mexico. What’s happening now is the macroeconomics, on a relative basis to the rest of the world, are sort of at the top of the charts. And investors are bringing lots of capital to Mexico in all the asset classes. So an equity market that’s performing extremely well over the last two to three years, you have a currency market that this year is up about 7%. And you have interest rates falling but from levels that are from real interest rates where most of the world is negative real interest rates, Mexico has positive real interest rates.

There’s tremendous investor demand for Mexican assets and you’re seeing right now the exit market for private equity to be very, very strong which will bring more capital into the market to do additional transactions.

One of your specialties is in health care. How are you tapping that market and what’s the opportunity there?

Krensky: Healthcare in Mexico is a very underserved market. On a macro basis, the per capita spend on healthcare in Mexico is about an eight of the United States. And that spend is focused on the major metropolitan areas in Mexico. So Mexico City, Monterrey, and Guadalajara are all adequately or over served.

And the regional outlying areas, second and third cities, there is not high quality reasonably priced care in those markets for sort of the middle-income consumers. Our interest in the healthcare sector is to figure a way to serve that market. The idea is to build out a nationwide network of hospitals, to start with five hospitals over the next five years and to grow it from there. To do that, we wanted to have operational expertise and we went to the ABC hospital chain, which is probably the best known and highest regarded hospital system in Mexico.

And they have two large state of the art campuses in Mexico City. We partnered with them for their medical expertise. One of our operating partners is the former CEO of the only publically traded hospital chain in Mexico. And we partnered with some entrepreneurs to build out the system through Greenfield and acquisition.

How is the network model you’re creating meant to work and create value for your investors?

Krensky: The idea behind our healthcare strategy is somewhat innovative globally. The idea is to set up a network of regional hospitals in second and third cities in Mexico, the first one which is going to be in Cabo San Lucas, and the idea to have three ways to treat patients in these hospitals.

The first way is that they can be treated by the local staff that’s trained by ABC. The second way is telemedicine, consults with the ABC team in Mexico City. And the third way is to either have the ABC team go to the local hospital or have these patients go to the campus in Mexico City.

On the cost differential between Mexico and the United States, there’s a lot of data out there but I like to look at an anecdote that affected me personally. When I was in Mexico I had a serious injury and had to have reconstructive surgery on my nose. I went to the ABC hospital and had a team of surgeons, one of which was trained in Spain as one an international expert on this procedure. And the entire operation, post-operative care and my hospital stay ran around $10,000. And if you compare that to that same procedure, if I would have done it in the Tri-State area where I live, it was be slightly over $50,000.

So it’s about a 20% of the cost and I would argue, although I don’t have the data to support it, that the quality of that care was as good if not greater in Mexico than in the United States. So that creates a huge opportunity to not just service the Mexican market, but also the service U.S. patients looking for more cost effective options for their healthcare. And that’s part of our phase two expansion that’s several years down the road.

You also recently invested in an educational curriculum business. What’s the thesis behind investing in that space?

Krensky: Our anchor investment in education is a company called AMCO International. It’s a company that provides curriculum and teaching methodologies along with teaching materials to K through 12 private schools and public schools. That company, its history started with the founders having two private schools in Tijuana, Mexico and developing the curriculum for those schools and systemizing it and setting up a series of processes focusing on how children learn. And that business became the foundation of AMCO, which sells this curriculum and methodology to schools in Mexico, South America, and Spain.

In Mexico, in the private school system especially, the middle range schools don’t have the same resources to build out a curriculum that large schools like the American school have.

And AMCO provides for about four hundred dollars, five hundred dollars, the entire curriculum and process where it’s essentially providing about 50% of the value of the education for schools with varying degrees of capabilities with their teaching staff.

So AMCO’s specialty is to provide a tool to teachers where less able teachers are able to teach at similar levels to more competent teachers. And the curriculum has changed over time, it’s a higher technology focused curriculum using iPads and other technology tools, both to service the students but also to service the teachers.

The other aspect of this that’s very important is bilingual education is really one of the important education foundations for Mexico going forward. And AMCO has developed a way to bring bilingual education even to schools where you don’t have English speaking faculty.

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