Welcome to the Doctors' Portal
00:00 Sunday
Mediclinic News : Healthcare firms and too-hot-to-handle global markets


Healthcare firms and too-hot-to-handle global markets




News Description

BUSINESS TIMES When private hospital group Netcare announced a £2.2-billion (R38-billion) deal in 2006 to buy a controlling stake in the UK’s biggest private hospital group, General Healthcare Group, it confidently proclaimed that the transaction would boost earnings and open the door to further expansion in southern Europe. Instead the venture became an albatross around the company’s neck, and just before Easter this year it announced its exit from the UK. Investors cheered the decision and the share price shot up 10 percent. Netcare is but one of an ever-growing list of South African companies that have expanded offshore with great fanfare, only to get their fingers burnt. Others include retailer Woolworths, which recently announced a R7-billion write-down of its Australian business, private equity firm Brait, which came a cropper with its £783-million purchase of British high street retailer New Look in 2015 and ultimately wrote it down to nothing, and Famous Brands, which faced huge write-downs on a R2.1-billion acquisition of Gourmet Burger Kitchen in the UK. Hobbled by tough trading conditions Netcare CEO Richard Friedland declined to speak to Business Times because Netcare is in a closed period but had previously said that its UK business was hobbled by tough trading conditions and increasingly onerous rental agreements that ate up 20 percent of its turnover. The rental agreements, which contained a 2.5 percent annual escalation clause, were considered market-related when Netcare entered the UK, but the global recession, exceptionally low inflation, and a decline in the volume of more profitable privately insured patients meant they had become simply unaffordable, he said. After five years of attempting to renegotiate these rentals, Netcare called time. Whether it will find a buyer for its stake at a price that will keep investors happy remains to be seen. Offshore deals concluded by Life Healthcare and Mediclinic International, Netcare's JSE-listed rivals, haven’t shot the lights out either. Regulatory pressure Life Healthcare's Polish business, Scanmed, is still recovering from a double-digit tariff cut and the group is trying to sell its stake in its joint venture with Indian hospital owners Max Healthcare, which has come under regulatory pressure. Some investors also feel that the company overpaid when it bought the UK-based Alliance Medical Group for R14-billion in 2016 to enter the diagnostics industry. Mediclinic International has battled to bed down a £1.5-billion acquisition of Abu Dhabi’s Al Noor private hospital group that was made in 2016, due to high staff turnover and an unexpected new co-payment policy from health insurer Daman. Its Swiss hospital group, Hirslanden, which it bought for $2.36-billion (R28-billion) in 2007, has had to contend with a tough regulatory environment that’s recently crimped revenue growth. Meanwhile, its bid to take full control of London-listed Spire Healthcare, in which it bought a 29.9 percent stake in 2015 for R8.6-billion, has been rebuffed. So, what's gone wrong? Aeon Asset Management’s chief investment officer Asif Mahomed says he believes South African management teams have been over-confident about their ability to crack foreign markets. He said white male management in South Africa thought they were very good because they made excess profits in the apartheid years. They were in complete denial about the fact that 90 percent of the population could not compete with them, he said, adding that they think they are best in class, but don’t realise they were protected by apartheid. Life Healthcare CEO Shrey Viranna concedes that Life Healthcare’s offshore ventures haven’t yet met expectations but said the firm will only exit Max Healthcare if the price is right. He still believes India is an exciting market with compelling long-term growth prospects. SA’s record more dismal than most Gryphon Asset management portfolio manager Reuben Beelders said that while 70 percent to 80 percent of mergers fail globally, South Africa’s success rate is more dismal than most. He believes the guys who sell to South African companies see them coming and just up their price, yet the sad thing is that they don’t actually have to do a deal - they can return the money to shareholders. Chris Willis from All Weather Capital said while a company may have the skill set needed to operate a hospital that does not necessarily mean it has the expertise to navigate different healthcare systems. He said under-appreciating this complexity has had some calamitous outcomes. Willis said it seems some of the more recent acquisitions have been done without the necessary due diligence and that prices have been struck too high. Not all the deals have been duds, though. Sasfin Securities senior analyst Alec Abraham said that while it’s easy to criticise the private hospital groups’ offshore performance with hindsight, all of their deals made sense at the time, says. Also, he said, from a risk point of view, you don’t want to have all your eggs in one basket and be solely exposed to one regulatory regime and one market.
Created at 2018/04/26 10:41 AM by Mediclinic
Last modified at 2018/04/26 10:41 AM by Mediclinic