France’s regional hospital groups consolidate as multiples increase
France’s regional for-profit hospital operators have spent the last 12 months aggressively consolidating the c.65% of the sector not held by the two largest players, Ramsay Sante and Elsan, who have been notably quiet on home turf. Vivalto, C2S and Doctegestio have added a collective €500m in sales while the larger pair have done as much selling as buying. Why? HBI talks to a Paris-based M&A advisor, who says deal pricing has improved as shown by the recent Elsan deal.
“In H1 2020, Elsan’s management has clearly been busy with COVID and the recent disposal process by CVC so have only completed a limited number of transactions. With Ramsay, obviously it is still digesting the Capio acquisition but my feeling is that the parent company is a bit cautious about Europe and France in particular,” says Philippe Guézenec, managing partner at Clearwater International, which has advised on 15 transactions in the sector in the last three years.
Elsan did wrap up the acquisition of €90m revenue, three-hospital group Hexagone Santé Méditerranée in March, but also sold a hospital to another group in June. Ramsay announced a small deal for an addiction therapy clinic the same month – sales in the low single-digit €m – but is also divesting two much larger ex-Capio facilities to a competitor.
Contrast that to activity by number three player Vivalto Sante. In November 2019, it finalised the large Confluent acquisition which has over €100m in sales. This year, in January, February and July it acquired hospitals with €18m, €55m and €8m sales, respectively, in Normandy and Nouvelle Aquitaine. Clearwater had the sell-side mandate on two of the deals. Vivalto now has €800m in pro-forma 2019 sales and has expanded from being a Brittany-only player to Normandy and the East. It is 66%-owned by a consortium of investors including Abu Dhabi sovereign wealth fund Mubadala and French banks and insurers’ investment arms, 33% by its doctors and is likely to come to market in 2021/22.
“Our research shows that Elsan, Ramsay and Vivalto now hold 40% of the for-profit acute hospital market (medicine surgery obstetrics/MSO) while the top ten have 65%. So there is some more buying to do but the future of French hospitals groups is clearly diversification and internationalisation. Elsan and Ramsay, in particular, are looking outside of the MSO sector for M&A,” Guezenec says.
Smaller group C2S, majority-owned by PE firm Eurazeo and present in the east/southeast, has virtually doubled sales in the past year through M&A. It acquired the Belledone Clinic in Grenoble in August last year which added €50m while in January and July 2020, it has acquired four hospitals in East France, totalling close to €100m sales. Two of these – the Saint-Vincent and Saint-Pierre hospitals in Besancon and Pontarlier – are the ex-Capio facilities being sold by Ramsay. La Presse du Doubs says that part of the latter deal includes the transfer of the Devron hospital from C2S to Ramsay, though this is not widely reported.
Doctocare, the healthcare arm of relatively new player Doctegestio, has also been active this summer. It bought the Saint-Coeur hospital in Vendome from Elsan, adding €10m sales (its fourth acquisition from its competitor) and won an auction process for the Cliniques Mutalistes de Grenobles, the healthcare service arm of a non-profit insurer, which has €120m of sales, both in June. It beat bids from Vivalto and another non-profit insurer and the deal is controversial as it amounts to effective privatisation. Doctocare has a national footprint.
The other big PE-backed regional consolidator is Almaviva Sante which is in the capital and Cote d’Azur regions. But it has not announced any deals since buying a large hospital in Paris last year. It changed CEO shortly after the deal, appointing ex-Korian manager Yann Coleou who oversaw massive M&A growth when he ran elderly care group Korian.
So what is happening to deal pricing? Guezenec: “Firstly, the real estate component of deals is important. Real estate value in healthcare has increased by 30% from 2016-2020 as groups like Icade Primonial or BNP Paribas REIM have been buying healthcare properties for very high prices. So low opco multiples of 8-8.5x EBITDA in that period are not relevant.”
“We’ve seen opco valuations move from around 8-8.5x to around 10x now. Elsan is about to be acquired for close to 11x EBITDA, which is a figure no one was expecting, as it only has around €275m of propco value on the balance sheet.”
“On the propco side, we are seeing cap rates of 5% or 20x EBITDA for good assets in big cities. So groups like Vivalto which owns a lot of its own real estate in big cities could trade for 14/15x EBITDA – 10x for the Opco and 18/20x for the propco.”
He adds that another explanation for apprehension amongst some operators this year could be concern around what comes out of government-level discussions on the future of the French health sector (Segur de la Sante). In July it was announced that every public and possibly private hospital will have to increase the wages of nurses by 10% in light of COVID-19. “This might explain why some players have been more quiet recently,” he says.
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