French PE firm PAI Partners will become the new owner of Fresenius Vamed’s rehab business. Vamed is currently a subsidiary of German health care conglomerate Fresenius, who will continue to hold a minority stake.

Click here to see a list of the largest rehab groups in Europe, by revenue, in HBI Intelligence.

PAI Partners is buying a 67% stake in Fresenius Vamed’s rehab business, which accounts for about €1bn of Fresenius Vamed’s ~€1.7bn healthcare services revenue. Fresenius will continue to hold the remaining 33% of the shares.

Previously Dutch PE firm Waterland Private Equity was touted as the frontrunner in the sale process that Fresenius launched at the end of last year.

The sale is part of Fresenius’ transformation plan which has seen it selling off non-core assets to focus on its hospital subsidiary Helios and its drug/nutrition/devices subsidiary Kabi. Last year it deconsolidated multinational dialysis giant Fresenius Medical Care, and sold its fertility subsidiary, Eugin, to KKR-owned fertility group IVI RMA and Spain-based asset management firm GED for €500m, as well as its Peruvian hospital assets.

Fresenius says the rehab business has an enterprise value of €853 million, although, somewhat confusingly, the company doesn’t say that this is in fact what it is being sold for. It has 9,100 beds and 9,500 employees and a total of 67 facilities across Germany, Austria, Switzerland, the Czech Republic, and the UK. Fresenius says that it generated approximately €1bn revenue in 2023 and was profitable.

Philipp von Hammerstein, a partner at Belgian PE firm Gimv, tells us: “Vamed has some homework to do. It has quite a significant capex backlog. But I think a lot of what needs to be done are things that can actually be done. I think there are some really good parts of the business. In the last few years Vamed has not been very active on the M&A side. I think it was a bit stuck in the Fresenius situation and couldn’t do a lot on a strategic level. So I think it could be a good new opportunity for them to become a bit more actively managed.”

PAI Partners says that becoming a standalone company will mean Vamed’s rehab business will be “well positioned to focus on operational excellence to better meet the needs of its patients”, and be able to make “greater investments in the team”.

Hammerstein explains that Germany’s rehab market is split into the inpatient and outpatient market, with each having its own dynamics. Gimv is invested in the outpatient sector, as it owns Rehaneo, a ~€50m player.

“The outpatient sector has been quite healthy in terms of volume growth and margins. The inpatient sector has different challenges. There’s a significant part of the capacity that isn’t located ideally. A lot of capacity was built decades ago along the former East-West border in areas that were economically disadvantaged, with subsidies. Today patients prefer to be closer to home, even when they’re going to an inpatient facility. Therefore those players that have a significant presence in the countryside have been having volume issues. But this isn’t true for every operator or facility.

“Then you have the issue for the inpatient sector that, from a reimbursement perspective it is more costly than outpatient, so the willingness to increase rates in the inpatient sector is much more limited than in outpatient. This, combined with inflation in the last couple of years, which inpatient players are a bit more exposed to, has put a lot of inpatient operators under stress. Whilst in the outpatient sector margins remained stable, for a lot of inpatient providers they have decreased. This was the cocktail that made it a bit challenging.”

However, Hammerstein adds that there will continue to be a significant need for inpatient rehab capacity, even if the inpatient sector continues losing market share to the outpatient sector, as it has done over the last decade: “Every year it will lose a bit. But if you have a facility focused on neurology, or certain more severe orthopaedic conditions, you will have capacity for inpatient care. If you’re located close to a metropolitan area it should be possible to negotiate rates and have a good future. It’s more on the macro level that the inpatient sector will lose market share and some operators will suffer more than others.”

The deal is expected to be completed in the second half of 2024, subject to regulatory approval.