The price of management
Bupa is the second global player to buy in the UK healthcare market this week – its deal for dental group Oasis follows Life Healthcare’s acquisition of Alliance Medical. There are two things that stand out about the deals: the Brexit factor and the premium paid for top-rated management teams.
Brexit cut the value of the pound making UK assets more attractive. Life referred directly to this in its communication to the market before the deal. And although Bupa is a British company, it has global scope and its buy is a further piece of Brexit inspired opportunism.
But the multiples paid by Life and Bupa (13 for Alliance and 15.5 for Oasis) are high, even in comparison with other recent UK transactions like BC Partner’s purchase of 22 Priory clinics at 10.5 times EBITDA.
Life and Alliance only released a couple of years of financials leaving analysts scratching their heads to account for the chasm between EBITDA of £60m and after-tax profit of £9m. One analyst thought at least some of the difference would come from one-offs rather than depreciation. And, as an outsourcer, whilst a squeezed NHS may mean more outsourcing it is unlikely to mean high margins. It is always competing against the NHS itself.
These concerns were enough to see the share price drop 5% or so. Since October 18, Life has dropped 15% and rival Mediclinic which has disappointed in the middle East has fallen by 16%. In total, a whopping $1.5bn has been wiped off their combined market cap.
Oasis looks a solid business that’s also being presented as a West European growth platform. But Bupa paid through the roof: typically dental practices fetch just 5-6 times EBITDA. Could Oasis, the UK’s first branded chain, really be worth triple that?
That depends on how you value what both Alliance and Oasis undoubtedly have: management with pedigree. Guy Blomfield, CEO of Alliance, turned a few heads by negotiating a national PET-CT contract that was unprecedented in the scale of its partnership between NHS bodies and the private sector. His management team have taken a 5% stake and Life will be hoping it can work its magic elsewhere.
Justin Ash at Oasis is another experienced manager who’s rapidly built a national player, integrating Smiles Dental and Apex Dental, expanding into Ireland and turning a network of cottage industries into a corporate chain. We imagine that both have just joined the ranks of the moneyed classes.
We would welcome your thoughts on this story. Email your views to Claude Risner or call 0207 183 3779.
