Newsletter May 2018

ACXIT HEALTHCARE NEWSLETTER
May 2018
HEALTHCARE NEWS
For Europe & Germany
Bridgepoint preparing sale of the nursing home business of Care UK

The British private equity group Bridgepoint has launched the sales process to divest the nursing care business (incl. some of the real estate) of its portfolio company Care UK. The group was delisted and acquired by Bridgepoint in 2010 for more than GPB 400 million. Since then Care UK invested significantly in developing more than 30 new homes and operates today more than 8,000 beds in 118 facilities.
 
ACQ5 Gamechangers Award Healthcare Europe

ACXIT Capital Partnes has been awarded with the ACQ5 Gamechangers Healthcare & Pharma Corporate Finance Advisory Firm of the Year award 2017 for Germany and Europe. We are proud to receive this award which highlights the extensive sector knowledge of ACXIT Capital for Healthcare and Pharma in Europe.
 
Eurazeo Patrimoine announced the acquisition of acute clinic chain C2S in France
 
End of January the private equity investor Eurazeo Group has announced the acquisition of the French private clinic chain Compagnie Stéphanoise de Santé (C2S) – with 11 clinics the 8th largest acute care provider in France. According to a press release Eurzeao invests around EUR 100 million to become the group’s majority shareholder alongside the management and medical practitioners. The seller Bridgepoint acquired C2S in 2011 in order to fund the growth through acquisitions.
 
Nordic Capital acquires Ober Scharrer Group

Following the acquisition of Alloheim in 2017, Nordic Capital continues to expand its investments in the German Healthcare Services sector by acquiring the leading ophthalmology outpatient chain in Germany – Ober Scharrer Group. In 2011, Palamon Capital Partners acquired the business from the founders who remained minority shareholders. As of today, the company performs more than 85,000 treatments per year across its c. 80 clinics offering a wide spectrum of conservative and operational ophthalmologic treatments to statutory and private insured patients. The seller Palamon Capital is rumored to generate a return of 3.6x times the invested capital.
 
Korian rumored to consider sale of Belgian operations but denies takeover talks
 
Early March Korian was rumored to enter into discussions regarding the potential sale of its operations in Belgium after the receipt of indicative offers from financial investors. Prior to that Korian just closed the latest add-on acquisitions to the portfolio in June 2017. In response to the rumor in the press, Korian announced that it is currently not in discussions regarding a potential divestment of the Belgian operations.
 
International private equity firm Investcorp entering the German dental market

The German dental clinic Privatzahnarztklinik Schloss Schellenstein has been acquired for an undisclosed amount by Investcorp. Following this acquisition Investcorp announced to use the Company as a platform for the consolidation of the highly fragmented German dental sector.
This acquisition is in line with the overall trend and strategy of financial investors to consolidate fragmented sub-sectors in the healthcare services industries such as nursing care, radiology, eye clinics, etc.

 
Luz Saúde to be taken from the stock exchange
 
Mid April Fidelidade, the 98.8% shareholder of the Portuguese acute hospital chain Luz Saúde announced that it considers to take the Group private. Fidelidade considers that the maintenance of Luz Saúde’s public company status is not justified, in particular bearing in mind the costs and formalities inherent in such status. Fidelidade, which is indirectly owned by the Chinese Fosun International, offers the remaining shareholders EUR 5.71 per share representing a premium of 90% to the last quotation before the offer.
 
ACXIT Capital Partners exclusively advises on the successful sale of Paracelsus-Kliniken to the investment holding Porterhouse

The family-owned investment holding Porterhouse Group AG has received the approval of the creditors committee required to acquire Paracelsus-Kliniken. In late December 2017 Paracelsus Kliniken, one of the largest German private acute and rehabilitation clinics operators, filed for insolvency. The Group with 5,200 employees operates nation-wide approx. 40 facilities in 23 locations.

 
Attendo Group selling Finnish primary healthcare operations to Terveystalo
 
The listed Swedish healthcare services provider attendo as agreed to sell its Finnish primary care, specialist care and dental clinics for EUR 234m to the Finnish competitor Terveystalo. This divestment decision was justified ahead of major reforms in this sector in Finland. Based on the 2017 financials, Terveystalo and the acquired operations generated a joint revenue of EUR 924.4m and an adjusted EBITDA of EUR 112.4m excluding synergies.
 
Source: Company Information; ACXIT Capital Research
HEALTHCARE TOPIC OF THE MONTH
Investors in the Healthcare Industry
Financial Investors Are Successful Against Strategic and Chinese Investors
 
Numerous transactions have been completed in Germany in recent months. Acute clinics, rehabilitation clinics, specialist clinics, nursing homes and outpatient health care providers changed hands. It is common to most of the transactions that neither direct competitors nor cash rich Chinese investors were successful buyers. Financially driven investors from the private equity industry or investment companies of high net worth families have been in most cases the buyer.

In particular, it seems surprising that competitors from the same sector could not use their strategic advantages and cost-cutting potential for their benefit. In fact, financial investors have outbid all other bidder groups. Past transactions show that not only the favorable financing environment has contributed to the success of financial investors, but also that they value the earnings potential of a company more than to history of a business. In doing so, financial investors not only take into account the earnings potential of the acquired company, but also include expected positive effects from the consolidation of fragmented markets in their purchase price calculation. Furthermore, the valuation of financial investors are driven by discounted future exit values (in other words the “resale” value of accompany). Lastly, it sounds rather like a paradox that financial investors like processes where they face strategic investors in the bidding situations as it provides the investors with confidence that there will be also buyers in the future.

And where are the investments of Chinese companies in the German healthcare market? The answer is “not present yet!” The reasons are manifold. On the one hand, the extensively regulated German health care system is alien to many Chinese companies. Also, translating domestic medical “know how” into Chinese markets – despite the political will of the Chinese 5-year plan – does not seem easy, as the current medical standards and patient demand in China differs significantly from the German market. Furthermore, the German language is a big hurdle for Chinese and other foreign investors. Not only all regulations are in German language but also most of the employees in the sectors lack extensive knowledge of foreign languages. In addition, documentation in companies in English are rarely to be found and thus represent an additional entry barrier for Chinese investors. It is foreseeable that the importance of language barrier will evaporate in the long term. However, given the “hunger” of financial investors for German clinics and nursing homes successful investments of Chinese companies are expected to remain unlikely in the near future.

Without wanting to elaborate on social policy, there are some noteworthy aspects that should at least alleviate some of the fears of the negative consequences of investments of the financially driven investors. On the one hand, it is undisputed that private investment in the health sector is needed in order to accelerate the modernization of the sector and to ease the burden on public budgets. Also, the employees seem to have arranged themselves with financial ownership as they seem not to flee in masses from the portfolio companies of the financial investors but rather see them as a chance. A very recent example is acquisition of the Paracelsus Group by Porterhouse where the employees’ sympathies – as can be read in public – clearly belonged to the Swiss Family Office and not to alternative buyers who were already active in the operation of clinics.

Last, but not least, financial investor transactions are usually accompanied by full-bodied statements to increase medical quality in the acquired companies. Without being to blue-eyed, the stated investors’ good intentions in combination with strong surveillance from state regulators should allow at minimum to preserve the quality of health care service industry and perhaps even lead to an improved service quality in the future.

In light of these consideration and the full order books of the investment banks, we can expect a continuously busy transaction market for the rest of the year. In addition, the high demand for healthcare assets combined with an attractive capital market environment should keep valuations and prices at a high level. It will remain an exciting rest of the year!

 
Source: ACXIT Capital Research
HEALTHCARE VALUATION ANALYSIS EUROPE
European Healthcare Companies Outperform EURO STOXX 50
Comparable Company Analysis
Healthcare Indices vs. EURO STOXX 50
Note: Indices for Nursing (EU) and Acute & Rehabilitation (EU) correspond to the companies listed in the CCA, equally weighted
Source: S&P Capital IQ as per 18.05.2018
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Since 1998, we offer our clients comprehensive corporate finance advisory services including M&A and capital markets advisory as well as restructuring, debt and strategic advisory. To date, we have completed 400 transactions with a total deal/financing volume of approx. EUR 20bn. While our home market is in the German speaking region, most clients are international and transactions cross-border.

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ACXIT HEALTHCARE CONTACT
THOMAS KLACK
Managing Partner
thomas.klack@acxit.com
+49 69 247 414 120
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