European procession into Latam continues
European operators’ interest in Latam continues apace, with French nursing behemoth Orpea announcing two joint ventures that will see 2,000 nursing home beds built in Brazil. With Belgian-based Senior Assist making a foray into Chilean healthcare, how viable is Latam expansion for the Europeans?
Orpea’s joint ventures are with fellow countryman Philippe Austruy’s holding company, SIS Group. The move will also see 1,000 new beds built in Portugal over the next 2-3 years.
This is Orpea’s first foray into Latin America. Orpea will own 49% equity in each of the two joint ventures and more than half of the real estate, in line with its global policy. It has the right to buy control at a later date.
But this is not the first foray into Latam by European elderly care operators – Belgian player Senior Assist has successfully opened a chain of new-builds in Chile and is planning more elsewhere. It has told us in the past that it avoided Brazil because of high property prices in the big cities. Senior Assist operates about 420 nursing beds in Chile under the Acalis brand and is building new homes in Colombia after taking on investment from the IFC last November.
And as Healthcare Nova readers will know, Latam has caught the eye of non-Europeans recently too with US insurer United Health agreeing a friendly deal to buy Banmedica, the integrated payor-provider that covers Chile and has moved into Colombia and Peru, in a deal valuing Banmedica’s equity at US$2.8bn.
Investment Relations Officer Steven Grobet from Orpea tells Healthcare Europa that both Orpea and SIS have been laying the groundwork for a development in Brazil for some years. Orpea will take charge of operational management and all 2,000 beds will be covered by the Brazilian joint venture. Construction on some of these has already started.
Grobet adds that going into Brazil’s complex market alongside a partner with expertise in greenfield projects has allowed Orpea to fast-forward its international expansion.
“Without the joint venture we would only be able to build two or three small facilities; going through this route has allowed us to make that 2,000 beds. These will start to open in 2019 and 2020,” he tells Healthcare Europa.
The joint venture will target the higher-end segment of Brazil’s urban population, with construction taking place in Sao Paulo, Rio de Janeiro, Fortaleza and Belo Horizonte. Grobet added that, within these cities, it is building in prime locations and will charge a similar rate to that in Europe: €75-100 per bed per day.
Philippe Austruy is known in France and wider Europe as a pioneer in healthcare ventures. He founded and built up General de Sante, Medidep and Medibelge, which have been acquired by Ramsay Health, Korian and Orpea, respectively.
The news was well received by our contacts in Brazil. Marcelo Fonseca, former CEO and now board member of Dal Ben, a significant operator in the post-acute and homecare sectors, says that Orpea can set the bar for domestic players.
“To have a big international player coming in and setting standards is hugely important. Brazil’s market is nascent and fragmented with a huge discrepancy in quality of care and formality of operations.”
Ricardo Soares of Brazil Senior Living, the largest domestic nursing home operator by some distance, adds that “It will be good to be playing alongside a large European operator like Orpea,” although he disagrees that Orpea can set the standards for domestic players, as BSL is doing just that. “Orpea entering Brazil is an advertisement for the industry.”
The over-80s population in Brazil is set to increase from 3.3 million to over 15 million by 2050, but there are only three care home beds per 100 of them compared with 20 in Europe. The market is dominated by the public sector, not-for-profit and mom-and-pop operators. Fonseca cites a local report that said 70% of private nursing home beds in Sao Paolo are unregulated.
Meanwhile, the 1,000 beds across 10 facilities being constructed in Portugal will cement Orpea’s position as Europe’s largest nursing home operator by total beds. It will bring its total to 80,000 (77,000 currently according to its most recent annual report).
Our Analysis: Brazil is a large and interesting market for elderly care with a substantial and wealthy middle class.
The main problem is that you can only expand in Latam by building new build as there are no chains with decent nursing home assets to buy. Greenfield expansion like this calls for deep pockets and a long-term perspective better suited to a listed company such as Orpea than to private equity.
Soares cites research presented at the National Investment Center for Seniors Housing and Care (NIC) conference in Chicago last year that showed when a new operator enters an elderly care market, the overall market size grows more than the share taken by the newcomer. Orpea’s entry to Brazil, therefore, is good news for everyone there.
We would welcome your thoughts on this story. Email your views to David Farbrother or call 0207 183 3779.
