Toppy prices spell danger
A major investor recently told us that he wouldn’t have done any of the recent big deals in the health care services sector in Europe.
“I wouldn’t have bought Alliance Medical for 13 times EBITDA or for an enterprise value of 66 times after-tax profit”, nor Oasis for forward EV/EBITDA multiple of over 15, nor Curaeos at 15 times run-rate EBITDA.” Nordic Capital is about to pay 12.5 times EBITDA for nursing home group Alloheim, and we hear that German ophthalmology group Ober Scharrer will follow for at least that amount.
There are dangers aplenty. First, in most markets, payors are getting tougher. Quality and value health have become the watchwords, according to big international hospital groups. Increasingly, there will be more enforcement as AI enables payors to easily identify waste, over-activity and cherry-picking. To cope, hospital groups are being forced to constantly rethink processes and cut out costs. That is a good thing for society, but difficult for a sector which, in Europe outside of Germany, is still trapped in the hotelier model.
At the same time, budget ceilings remain in place. Across Europe, we’d argue that the attitude of governments and public payors towards the private sector has hardened in recent years. In Germany, the privatisation tap has been more or less turned off. In Sweden, there remain fierce public debates about what profit margins are acceptable. In the UK, we are told that, however stretched NHS trusts are today, there is a growing reluctance to outsource medical services. Poland has switched to an intransigent statist model.
Of course, you can always go after the private individual paying cash or using private medical insurance. But here, as well, there are limits to what individuals will pay for fillings or early diagnostics. Minor white fillings in the UK private sector now cost circa £75 each and that is on top of the cost of the examination. There are severe limits on how many people can afford this sort of money. And a real danger of a backlash if the rise of private chains is too closely associated with price hikes, as it so often is in private dentistry or veterinary surgery.
We would welcome your thoughts on this story. Email your views to Max Hotopf or call 0207 183 3779.
