Expect an acquisition binge
Valuations for healthcare service groups in Emerging Markets are staggering. Fullerton, a chain of 200 outpatient centres in south East Asia is likely to have a market cap (excluding debt) of US$1.1bn. That values its 400 doctors and 700 nurses at around US$10m per head. Meanwhile, Saudi German, now known as Middle East Healthcare Company, IPOed in mid-April on the Saudi exchange, valuing it at $1.8bn.
Its four hospitals with a total of 800 beds today have a market capitalisation (ex debt) of US1.8bn. That is roughly four times 2015 revenue and values each bed at $2.25m.
It is hard to logically defend such valuations. After all these are bricks and mortar-based businesses and depend on face-to-face consultations with not inexpensive professionals. Fullerton has a good reputation. Saudi German less so. These valuations do mean that much larger operators in the Developed World (including the Big 3 South Africans) are going to find it all but impossible to make acquisitions. They are simply priced out of Emerging Markets.
Instead, we think we will see a buying binge as Asian groups buy specialist operators in Europe, South Africa or the USA. Such deals will be sold to investors as value-add. And it is true that Western brands and expertise can probably be imported into markets such as India and China. We have already seen specialist operators such as Eugen in Spain (IVF) and in Adeli in Slovakia (rehabilitation) sold to Middle Eastern buyers. Expect more.
We think we will also see Asian groups expanding into Latin America where multiples are much lower and yet growth rates look good. Imaging and lab groups like Fleury, Dasar and Alliar in Brazil or Mexican hospital groups like Empresial Angeles and Chilean groups like Banmedica will look tempting.
Perhaps we will even see bids for the big South African, German or Australian groups.
We would welcome your thoughts on this story. Email your views to Max Hotopf or call 0207 183 3779.
