Hospitals – don’t buy big for the synergies

Ramsay Generale de Sante has revealed just €20m of synergies will be gained from its Capio deal, or around 1.8% of the deal value, highlighting the lower synergies accruable in the hospital sector compared with other sectors where the synergy-to-valuation ratio can be twice as high.

Ramsay Generale de Sante’s second, successful offer for the Nordic, French and German operator in 2018 valued it at around €1.1bn and will generate €20m of synergies according to an investor presentation released this week, some 1.8% of the valuation. Considering the combined group has €3.8bn in sales, it certainly sounds small.

But other big hospital deals have shown even lower figures. Fresenius Helios’ €5.76bn deal to buy Quironsalud in 2016 was said to generate €50m in synergies, less than 1% of the valuation, while when Mediclinic bought London-listed Al Noor for $2.2/2.3bn (8-8.5bn AED) the same year, the 75m AED of annualised synergies expected was around 0.9% of the deal value. The $6.5m in savings that NMC accrued from paying $560m for Al Zahra in 2017 was slightly better, at 1.16%.

Look at other sectors and we see higher figures. When French lab group Cerba bought rival Bio7 a year ago, the rumoured synergies were €20m in a deal valuing smaller operator at €450-500m: 4% even at the higher end. Estimates on Cinven’s synergies from buying Synlab and merging it with Labco range from 1.4% to 2.7% of the deal value.

Other good examples outside the hospital sector can be found in the Nordics. Terveystalo’s acquisition of rival Attendo’s healthcare business, comprising dental and outpatient health clinics, was expected to generate €5m in cost synergies, 2.1% of a deal valuing the latter at €233m. When Capio expanded its primary care and rehab offering in western Sweden (January 2017) its acquisition generated synergies totalling 3.3% of the deal value, while Ambea buying Aleris’ elderly care operations at the end of 2018 was said to generate savings of 120 SEK out of a deal worth 2.6bn SEK, or 4.6%.

Important to remember is that these were all announced at the time of the deal and more cost-savings could appear further down the line, while synergies might not always materialise as expected. And synergies are not always the primary reason for an acquisition, with the Capio, Quironsalud and Al Noor deals primarily driven by international expansion. But the difference is unignorable and might demonstrate how much more difficult it is to industrialise inpatient acute hospitals compared with other healthcare sectors.

We would welcome your thoughts on this story. Email your views to Cameron Murray or call 0207 183 3779.