The rise of M&A and venture capital investments in the Brazilian healthcare sector

Thursday 31 March 2022

Renata Fialho de Oliveira

Veirano Advogados, São Paulo


Daniel Augusto Malatesta

Veirano Advogados, São Paulo


Under Brazil’s 1988 Federal Constitution, health is a fundamental social right. The government has a duty to provide healthcare assistance through economic and social policies designed to provide universal and equal access to services. Yet, public investment alone has not been sufficient to cope with the overwhelming demand; a significant portion of healthcare services in Brazil is offered by private institutions, either through public contracts or independently. The Covid-19 pandemic and the digital revolution that followed have accelerated changes in Brazilian healthcare regulation and boosted private investment in the field.

While the public healthcare system faces major challenges to cover the entire population, private players’ difficulties in providing healthcare services have been mounting as well. Only one-quarter of Brazil’s more than 210 million people rely on a private health insurance or a plan in lieu of – or in addition to – the public system (known as SUS – Sistema Único de Saúde). The cost pressures associated with mandatory coverage, and the increasing number of health-related lawsuits, has led to greater insurance costs and a reduction of the number of beneficiaries over the years, raising demand for alternative finance models and access to service.

The ageing Brazilian population is also a major problem for healthcare providers. Life expectancy in Brazil has been increasing rapidly. An age­ing population brings about an increase in age-related diseases and needs. As a result, this group pushes demand for doctors’ appointments, therapies, exams and surgeries. This is putting the current healthcare services model, its respective funding and payment structures into question.

Old and complex problems require new and clever solutions. Until recently, the regulation of the healthcare system presented several barriers to technology and innovation. This has significantly changed with the Covid-19 pandemic. Social distancing policies restricted the circulation of individuals and in-person visits to clinicians, opening the door for technology and innovation.

A major change originated by the Covid-19 pandemic concerns the publication of Law No 13,989/2020, which expressly authorised telemedicine services for the duration of the state of emergency connected with the pandemic. This represented a drastic shift from the pre-pandemic approach to telemedicine, which was only allowed in exceptional situations (under Resolution CFM No 1,643/2002), due to a limitation set forth in the Medical Code of Ethics preventing consultations without the direct examination of the patient.

Another innovation prompted by the Covid-19 pandemic is the regulation of electronic signatures, introduced by Provisional Measure No 983/2020, which enabled the issuance of electronic prescriptions for the purchase of controlled medication.

In addition to direct benefits to patients – who, in the past two years, made use of long-distance medical services – the new regulation also opened a new market for IT and telecommunications services providers who are concerned with improving the quality and reach of healthcare services and products.

The pool of issues and opportunities in the Brazilian healthcare industry, combined with the Brazilian regulator’s greater openness to new solutions and technologies, has certainly contributed to an increase in M&A deals and venture capital activity involving healthcare startups. Significant growth in healthtech investment was noticed in 2020, during the coronavirus pandemic. In the Latin America region, annual investment in healthtech grew 108 per cent between 2019 and 2020.[1] In 2021, healthtech investment rounds in Brazil alone reached $530m, distributed among 69 deals. The only two sectors that beat the healthtech sector in terms of number of Brazilian venture capital deals in 2021 were the fintech and retailtech sectors, with 176 and 87 deals respectively.[2]

M&A transactions have also been on the rise. Brazilian publicly listed health companies’ acquisitions reached BRL 15bn in value in 2021. This is a significant increase compared to the previous year (transactions amounted to approximately BRL 10bn in 2020).[3] In total, there were 146 M&A transactions in the health sector in 2021, up from only 19 transactions in 2016.[4] Part of the surge is explained by large health groups’ cash availability following several IPOs and follow-ons in the recent past, and by their plans to consolidate market share and verticalise their businesses to reduce costs.

Traditional healthcare players have been very active in the Brazilian corporate venture capital field as well. In November 2020, Fleury, a longstanding medical and health organisation, joined forces with Sabin, a relevant player in diagnostic medicine, to create Kortex Ventures, a fund with a committed capital of BRL 200m to be invested in healthtech startups.[5] More recently, Hospital Albert Einstein, considered one of the best hospitals in Latin America, has announced a BRL 100m fund to be managed by Vox Capital, whose focus will be seed and early stage (Series A) investments in the BRL 1m region.[6]

As we write, more than two years into the Covid-19 pandemic, we see signs that the healthtech investment trend will continue. An indication of that is the latest investment round in the startup Alice, an innovative healthtech platform that uses technology to reduce costs associated with health plans and which is helping to reshape the industry. The company raised $127m in a Series C round in December 2021, the highest investment in the healthtech sector in Latin America to date.[7] The investment round was led by Softbank, and involved Kaszek and Thorn Tree Capital Partners. Sami, another healthtech using technology to reduce health plan costs and optimise the process involving patient-physician interactions, raised BRL 111m in a Series A extension in December 2021.

The wave of venture capital investment in healthtech should be put into a broader context. Overall venture capital activity has been increasing in Latin America and funding reached $20.2bn in 2021 (up from US$5.4bn in 2020).[8]

Startup valuations are rising as well. In 2021, ten Brazilian startups achieved unicorn status and the country ended the year with 24 startups classified as such. This is a remarkable increase, considering that the first Brazilian unicorn (99, a ride-hailing company later acquired by the Chinese Didi Chuxing) reached the $1bn valuation not long ago, in January 2018.[9]​​​​​​​

Brazilian regulators are attentive to the venture capital trend, although many legal pitfalls remain to be addressed. On 1 June 2021, a legal framework for startups aiming to facilitate the incorporation of and investment into startups was passed into law (Lei Complementar No 182/2021). Among its virtues, the new legislation reduces the uncertainty around investors’ exposure to startups’ liabilities and thus fosters the Brazilian venture capital industry as a whole. Nonetheless, great uncertainty still revolves around tax and labour issues arising from stock option plans, a common tool used by startups to incentivise and retain talent. Brazilian startups also must tackle difficulties navigating intricate tax rules and inadequate business partnership models.

Finally, in the healthcare sector in particular, the temporary telemedicine regulation that has been widely used during the pandemic, and which was well received in general, was specifically designed for the emergency situation. A definitive regulation of telemedicine is still under discussion and the exact legal framework for distance medical services using technology is yet to be seen.

The trend should continue in the short term. Brazilian healthcare issues generate opportunities for entrepreneurs, investors and traditional healthcare players alike. In turn, the boom in investments involving healthcare companies should continue to improve the lives of millions of Brazilians. Regulators in Brazil should take advantage of the momentum and continue opening the healthcare market to innovation and technology, while facilitating investments in the sector.

[1] LAVCA’s 2021 Review of Tech Investment in Latin America (LAVCA), see www.lavca.org/industry-data/lavcas-2021-review-of-tech-investment-in-latin-america, accessed 22 March 2022.

[2] Report Restrospectiva 2021 (Distrito), see https://materiais.distrito.me/mr/retrospectiva, accessed 22 March 2022.

[3] ‘Grupos de saúde movimentam R$ 15 bilhões em aquisições em 2021’ (Valor Investe, 1 March 2022), see https://valorinveste.globo.com/mercados/renda-variavel/empresas/noticia/2022/01/03/grupos-de-saude-movimentam-r-15-bilhoes-em-aquisicoes-em-2021.ghtml

[4] ‘Onda de fusões na saúde movimenta R$ 20 bi em um ano e aquece o setor’ (Estadão, 14 March 2022), see https://economia.estadao.com.br/noticias/negocios,onda-de-fusoes-aquece-setor-de-saude,70004007593.

[5] ‘Destaque’ (Economico Valor), see https://valor.globo.com/empresas/noticia/2020/11/05/destaque.ghtml, accessed 22 March 2022.

[6] ‘Hospital Albert Einstein cria fundo de R$ 100 milhões para investir em start-ups’ (Globo.com, 14 April 2021), see https://blogs.oglobo.globo.com/capital/post/hospital-albert-einstein-cria-fundo-de-r-100-milhoes-para-investir-em-start-ups.html#:~:text=O%20Hospital%20Albert%20Einstein%20vai,investimentos%20de%20impacto%20VOX%20Capital.

[7] ‘Alice levanta US$ 127 milhões com Softbank em maior rodada já registrada em uma healthtech da América Latina’ (Globo.com, 21 December 2021), see https://revistapegn.globo.com/Startups/noticia/2021/12/alice-levanta-us-127-milhoes-com-softbank-em-maior-rodada-ja-registrada-em-uma-healthtech-da-america-latina.html.

[8] State of Venture 2021 Report (CB Insights, 12 January 2022), see https://www.cbinsights.com/research/report/venture-trends-2021/.

[9] ‘Brasil ganhou 10 unicórnios em 2021. Veja quais foram as startups bilionárias do ano’ (InfoMoney, 29 December 2021), see www.infomoney.com.br/do-zero-ao-topo/brasil-ganhou-10-unicornios-em-2021-veja-quais-foram-as-novas-startups-bilionarias. ​​​​​​​