Brazil, the only way is vertical!
Payor/provider vertical integration is the most successful strategy in Brazil according to our experts. 14 February, 2022 finally saw the merger of the two Brazilian giants of vertical integration and Grupo Notredame Intermédica (GNDI) is now a wholly owned subsidiary of Hapvida. Together, they have become the second largest health care company in the southern hemisphere, just behind Rede D’or, with a market cap of US$17.2bn and approximately 17% of the Healthcare Plan insurance market, according to experts. Both companies were listed on the Sao Paulo Stock Exchange, GNDI’s revenue for 2021 was US$2.31bn and Hapvida’s US$1.82bn.
Click here to see a list of the largest for-profit operators in Brazil in HBI Intelligence.
The deal which took a year to complete was slowed by Brazil’s competition and antitrust authorities, but it was finally given the go-ahead in December. Hapvida suggested that the acquisition would make an impact on its EBITDA to the tune of R$1.38bn in the third year according to the investors documents showing the savings and synergies across the businesses.
Both had been focused on vertical integration and had verticalized operations in 19 of the 27 Brazilian capitals. Collectively they have over 50,000 staff and 290 clinical centres, 80 hospitals with approximately 6,880 beds as well as an accredited network of service providers.
The trend for vertical integration continues this week as Rede D’or, Brazil’s largest hospital chain and healthcare company with a market cap of US$20.16 billion, announced the acquisition of SulAmerica, the fifth largest healthcare plan insurer (third in revenue 2020 R$20bn) for R$13bn (US$2.6bn).
Rede d’or currently has 67 hospitals and an estimated 3,000 more hospital beds than the newly integrated Hapvida. Known for its acquisition strategy, Rede D’or have acquired over 50 hospitals in recent years and don’t look to be slowing down. Rede d’or’s EBITDA was R$4.2bn and SulAmerica R$582.74m in 2020.
This deal would give Rede D’or access to the 2.5m healthcare plan subscribers that SulAmerica has as well as their successful digital telehealth platform. SulAmerica’s subscriber base is almost exclusively corporate with over 50% in Sao Paulo, Rede D’or has a presence in 13 states and is particularly dominant in Sao Paulo. This merger should help operating efficiencies, potentially provide more control over claims and ultimately in bringing down costs. A strategy that emulates the likes of Hapvida and GNDI.
After the announcement SulAmerica shares rose from R$24.42 to R$37.90 when the acquisition was announced on the 23rd February, 24 hours later they evened out at R$34.62. Rede D’or shares followed suit and rose from R$50.40 to R$55.00 but evened the following day. This evening out could have been due to initial over-excitement about the deal or possibly due to SulAmerica announcing a loss of R$31.2m in Q4 2021.
Vertical integration strategies have been successful in Brazil since the early 2000s and as private health insurance continues to rise, coupled with opportunities for consolidation, companies are seeing it as a good way to control costs and raise revenues. According to experts this has been seen to work particularly well when employing a value based healthcare method.
Ongoing M&A
Private operators had US$30.4bn of revenue in 2020 and our experts in Brazil tell us that even with the larger deals going on, the Healthcare sector in Brazil has had plenty of room for consolidation, specifically in hospitals and the fragmented diagnostics centres. There are over 6,600 hospitals in Brazil and with over 56% of the sector privately funded and 24.5% of the population having private health plans.
The hospitals sector saw lots of activity with over 30 deals taking place in 2021 amongst hospital operators and despite the activity multiples have remained stable. Not just limited to the hospitals sector either: GNDI, Hapvida and SulAmerica made 4 acquisitions in the healthcare insurance plan market totalling over 335,000 an estimated subscribers in 2021, although this was comparatively slow compared to 2019/2020 due to the GNDI and Hapvida merger announcement. The lab sector which is particularly fragmented and ripe for consolidation saw 13 deals, and whilst our experts would have expected to see more, this could be due to a waiting period after COVID.
We would welcome your thoughts on this story. Email your views to Kirsty Withams or call 0207 183 3779.
