(Yicai Global) Jan. 4 -- The merger and acquisition craze in China's healthcare sector cooled last year, but specialized institutions, especially eye hospitals, drew enormous interest, according to a new report.

Eye hospital M&As accounted for almost 54 percent of the total number for specialized medical institutions, think tank HealthcareReport said in its 2018 China Hospital M&A Report published via WeChat.

Thirty hospital M&As completed last year, involving a total of 48 organizations, the same as in 2016, though the overall value of the deals was just half that of two years ago at CNY7.8 billion (USD1.1 billion), the report said. Just nine public hospitals were involved, accounting for 18.8 percent of the total, down from 62 percent in 2016, it added.

Specialized clinics such as ophthalmic hospitals were the sector's hotspot. Each of the eye hospitals acquired last year was private, with buyers either aiming to extend their industry chains or acquire similar businesses to increase scale as specialized institutions.

Guangzheng Group paid CNY600 million (USD87.4 million) in April to acquire 51 percent of Xinshijie Eye Hospital. Jangho Group's holding subsidiary spent CNY23.8 million in August for 70 percent of Dongtai Guangzheng Eye Hospital, while C-Mer Group took an 80 percent stake in Kunming Eye Hospital at a cost of CNY50 million in the same month.

Public hospitals find it hard to conduct M&As because of the complex interests involved, while such deals are easier for specialized private entities, an analyst at a brokerage told Yicai Global. He said the peak for M&As among dental and cosmetic surgery hospitals has passed, while eye hospitals can claim quite a large market and sound profitability.

Profit Models

Eye hospitals have rather clear profit models and the business can be replicated, so investors can quickly expand the scale and get their investment back, Wei Ruili, director of the ophthalmology department of Shanghai Changzheng Hospital, told Yicai Global.

"The eye hospitals that were acquired or merged last year all have their own specialties, either they are known for carrying out highly difficult surgeries, or services that cover high-end people, or treatments with higher unit prices," said Airdoc Vice President Zhang Jinglei. "These are inseparable from good experts while ophthalmology experts are very scarce."

Investors favor ophthalmic hospitals because they have high technology and equipment thresholds and good experts, Zhang added.

The eye hospitals were expanded after the M&As and will attract more patients and impact the operation of public hospitals, Wei said while talking about the influence of M&A fever on the ophthalmology sector.

On the other hand, the sector will be more concentrated with large non-governmental funds pouring in, which will help improve the welfare of excellent doctors and boost the field's attractiveness, benefiting patients in the long run.

Wei predicts that eye hospitals will look for more funding this year. "Last year's investment craze in eye hospitals may only be the normal flow of funds to different segments of the healthcare sector. It may not be right to say if a popular field can sustain in long term," he said.

The analyst also believes that the sluggish market and low risk preference may have contributed to fervor last year. In this context, "capital is more inclined to choose a field with wider safety margins, lower risks, and established profitability."