Armonea-Colisee merger creates fourth largest nursing home group

Belgian nursing home group Armonea has merged with French rival Colisee after months of preparing for a sale, creating Europe’s fourth largest nursing home group. We hear from a reliable source that this is effectively a takeover by the French player.

“Armonea CEO Chris Cools is leaving in June, and Colisee is taking over Armonea to continue the company’s European rollout under IK Partners,” says our source. “It is unclear whether owner Verlinvest will be reinvesting in the group which suggests a takeover from Colisee.”

We hear the group sold for an enterprise value of €540m, which is 12x its 2018 EBITDA of €45m. We first reported Armonea was ready for a sale last November, amid speculation the group could go for around €500m, 12.5x its 2017 EBITDA of €40m and around 1.2x 2017 revenue of €420m.

Market expert Stéphane Pichon from Your Care Consult adds it was a recognisable strategic move from the head of Colisee: “I think the head of Colisee is doing a repeat of what she did a few years back when she was at Medica and the company bought Senior Living Group and started a platform in Belgium, before Medica was bought by Korian in 2014.”

“Now buying one of the top three players in Belgium and getting access through that to Germany and Spain, she’s doubling the size of the company and she is clearly within the top four in France now. She wants to grow internationally so she was probably the most motivated out of the French players to go forward with the deal.”

The merging of Colisee and Armonea has created Europe’s fourth largest nursing home operator (excluding the UK) after Korian, Orpea and DomusVi. The group now has a combined total of 270 facilities housing 26,800 residents across Germany, France, Belgium, Spain and Italy. Alone, Colisee was 8th largest in the region with sales of €390m in 2017 and Armonea was 6th. The two now have combined revenues of €810m.

PJT partners, which has been advising Armonea for around 18 months, was joined by Rothschild to advise on this deal.

Our Analysis: Last year a Belgian-based market expert told us Armonea would go for around 10x EBITDA due to the likely buyer being a smaller player. “The likes of Orpea and Korian are too big to buy it, there would be competition issues, so you have to look outside Belgium for a purchaser.” As it happens, the multiple looks bigger though our source was right to look abroad.

Usually buyers of asset-light companies are infrastructure investment funds or private equity. Orpea for example, which owns half of its real-estate, would trade at a premium to others. We rarely see such big opco deals in Europe – the creation of the continent’s fourth largest operator will consolidate this space even further.

We would welcome your thoughts on this story. Email your views to Anaïs Charles or call 0207 183 3779.

Assisted living boom predicted in Italian cities

The head of Korian Italy says assisted living is the next big opportunity in Italian elderly care. We speak to her, and an Italian healthcare consultant to find out more.

“I think in the next two to three years, assisted living could take off in big Italian cities,” says Andrea Minciarelli of Your Care Consult. “If you’re in downtown Milan you’ll probably be paying towards €3,000-3,500 a month. For a less central urban area, you’d be paying around €2,500-3,000.”

“I’m convinced that in Italy there is a demand for this kind of offering, but it’s dormant. It needs to be awakened through specific marketing, where consumers see evidence of independent living, instead of purely seeing nursing homes.”

Currently, elderly Italians have recourse to home carers called badanti which cost an average of €1,500-2,000 a month, according to Minciarelli. Add to that the cost of living in your own home and you’re not far off from the average monthly cost of a residence in assisted living.

“You’re better off paying the same fee but in an assisted living residence,” claims Minciarelli. “Not only would everything in the home be taken care of, but you would have access to care without having to organise this yourself.”

Mariuccia Rossini, head of Korian Italy, says her group has already opened a small facility in Brescia, Lombardia.

“Currently it is not possible to consolidate existing structures, as there are so little on the market, in Lombardia there’s a few protected apartments but it’s a low amount,” says Rossini. “So in order to develop assisted living, we need to start building.”

She adds badanti have no formal qualifications, which can cause problems with the quality of care.

According to Minciarelli, Korian is going to be an important player in this market but new operators backed by private equity could also make an appearance. He tells us a private equity-backed operator attempted to develop a facility in the Milan area a few years ago, but it fell through due to problems with building permission. Market research on the area showed “an extremely positive response” to assisted living.

In 2015, French assisted living specialist Aegide-Domitys, alongside property developer Nexity, built a facility of 124 apartments in Bergamo, Lombardia, with the property company Immobiliare Percassi which owns the real-estate.

“I predict that the high-end of the assisted living market will be developed like it was in France, with fully dedicated facilities in urban and central locations (as opposed to a mix of assisted living and nursing home beds),” says Minciarelli. “But I imagine that within five years when the product is more known, we’ll see the kind of mixed structure they have in Germany. This is where two separated buildings are built close by, so that people can transfer from assisted living to a nursing home facility with ease when they lose independence.”

Our Analysis : It will be interesting to see whether Italians are willing to part with their badanti and move into assisted living. Currently, there are about 45 badanti per 100 elderly citizens aged 75+, compared to 10 nursing home beds. If the idea catches on, the potential for growth is very significant.

We would welcome your thoughts on this story. Email your views to Anaïs Charles or call 0207 183 3779.

Korian makes deal with Primonial to expand across France

Korian, France’s largest nursing home operator by revenue, has made a deal with its main property owner to build at least seven new facilities in the country. We speak to French healthcare real estate expert Stéphane Pichon about the deal.

On Monday, October 15, Korian signed an agreement with healthcare real estate developer CAREIT and property investor Primonial REIM, its main landlord. The former will act as advisors for the conception and construction of at least seven new rehabilitation facilities and medicalised nursing homes, while Primonial will supply funds and acquire all or part of the real estate of each facility.

“These are three complimentary structures, and the idea is that each entity focuses on its core business,” says Pichon. “CAREIT has been working with Primonial for two or three years now, and Primonial already owns a portion of Korian’s buildings, so these people know each other very well.”

The sector has a few different models in operation across the market, he adds. “Orpea and LNA Santé, for instance, have a completely different model where all of these tasks are internalised. They feel best placed to carry out construction at the right price, so that rent is not impacted by development margins.”

Korian made a similar deal with real estate investment company Icade last year in efforts to renovate a quarter of its housing stock. A lack of bed licences has put the breaks on organic growth, so the company has moved its focus to renovation, building assisted living facilities and opening geriatric clinics and hospitals.

“This partnership allows Primonial REIM to secure a position upstream of new investment opportunities while reinforcing its relationship with Korian,” says chairman of the board at Primonial, Grégory Frapet.

Korian plans to grow its current offering of around 750 facilities across Europe by another fifty before 2022. The group’s expansion was boosted this quarter by Korian’s acquisition of the remainder of Senior Assist’s Belgian portfolio, totaling 1,800 beds. Its acquisitive activity continues to fuel high growth abroad, with the group reporting 15% growth in both Belgium and Italy for Q3.  Though this is in stark contrast to its domestic business where growth is a mere 3.6%.

Korian’s share price increased 10% on October 15th, the day of the announcement.

We would welcome your thoughts on this story. Email your views to Anaïs Charles or call 0207 183 3779.

Source: Healthcare Business International 26-oct-18

What does Emmanuel Macron want for the healthcare sector?

Newly elected French president Emmanuel Macron did not talk much about healthcare during his campaign. Now that his party has won a sweeping majority in Parliament, what is in store for the sector?

One thing is clear: the nomination of Agnès Buzyn to the post of Minister of Health appears to please the private sector.

A haematology professor and ex-president of the Haute Autorité de Santé (HAS), an independent scientific regulatory body, several of our French contacts told us that many believe her arrival is sending the right signals: the time of Marisol Touraine, the former MOH fiercely opposed to private healthcare, is truly over.

“Agnès Buzyn wants to focus on prevention, most importantly because Macron aims to limit public healthcare spending to a 2.3% annual increase. That means between €4bn and €5bn worth of savings,” says Stéphane Pichon, managing partner at French consultancy Your Care Consult.

“It will be as usual. We know that will lead to further tariff decreases and less drugs being reimbursed,” he adds.

The country’s budget deficit, which ex-president François Hollande said would be under the 3% ceiling agreed by the EU, already looks set to stand at around 3.2% in 2017.

Such pressure to cut public spending suggests that Macron’s manifesto pledges may not be held – including his promise that the state will pay for the entirety of dental care, eyewear and hearing aids by 2022.

“What we’ve actually seen in recent years is the reimbursement of glasses being limited to once every two years. Opticians are seeing drops in the sales of glasses,” says Pichon.

Meanwhile, Buzyn has decided to merge some mutuelles (supplementary medical insurance) from January 2018 – hoping to “improve services” and “help save costs”.

Macron is also intending to reform the payment structure of hospitals and to change the way they are managed. His manifesto insists on the need to reduce the weight of DRGs in payments to all hospitals, and to give hospitals more autonomy. Pichon, however, says this is no priority for the new government which too busy trying to reform labour laws, considered a key step to fight against unemployment.

He is more optimistic on the pledge to fight the “déserts médicaux” (large rural areas with not enough doctors): “Doctors are organising themselves differently, centralising back office processes and working as a multidisciplinary team. But this is happening regardless of what government is in power.”

“It’s worth bearing in mind that many in the industry wanted Fillon to win. But Macron is the best they could have hoped for after the first round and they will have to work with him. It could have been much worse.”

One source speculated that recent healthcare laws passed by Touraine could be used to enable external investors in areas such as imaging services.

Source: Healthcare Business International – June 30th 2017

European healthcare real estate market expected to take a hit following record year

UK market to stablise after Brexit subdues investment

The European healthcare real estate market is expected to drop off over the next 12 months after a buoyant year, according to new research.

Your Care Consult this week announced the publication of its annual study of the European markets, which shows the UK is falling behind other countries in terms of investment.

Stéphane Pichon, managing partner, said: “The results reveal that, against a backdrop of historically-low interest rates, the search for secure returns via long leases once again boosted investment in the European healthcare real estate in 2016.”

In fact, the investment volume reached a record €6.7billion, up 10% compared with 2015, thanks to several ‘unique’ secondary deals in both France and Germany with cap rates significantly down.

A real pan-European market is being formed helped by the acquisition strategies of many European nursing homes operators and real estate investors.

The results reveal that, against a backdrop of historically-low interest rates, the search for secure returns via long leases once again boosted investment in the European healthcare real estate in 2016.

“Due to this unfavourable baseline, we expect the investment volume to be down to €5billion in 2017, with cap rates still decreasing.”

The market has enjoyed growth in investment volumes since 2014 and is characterised by nursing home operators and geographical diversification by healthcare-focused real estate investors, which are now investing in several European countries and, in secondary deals, sell assets to each other.

European insurance companies are also becoming increasingly active, revealing ambitions to invest in healthcare.

In 2016, European investors mostly favoured the markets of Germany (+100%), France (+50%) and the Netherlands (+30%), while activity was subdued in the UK, which was down by 60%.

The trend of sale and leaseback continues to dominate as it enables operators of clinics and nursing homes to dispose of their real estate in order to improve their balance sheets and free up cash for development.

With interest rates historically low, investors are taking a close interest in healthcare real estate, especially recent facilities operated by sector leaders with high-occupancy rates, secure rental income, and recurrent cash flow.

Unlike bank loans, where both the interest and the capital must be repaid, these agreements simply require healthcare companies to pay rent during the term of the lease.

The report states: “With interest rates historically low, investors are taking a close interest in healthcare real estate, especially recent facilities operated by sector leaders with high-occupancy rates, secure rental income, and recurrent cash flow.”

“Moreover, the lack of dynamism in the office rental market of continental Europe is impacting the strategies of real estate companies, who are now turning towards alternative assets, notably in healthcare real estate.”

While, 2017 is unlikely to be another record year, cap rates are expected to stabilise by the end of the year.

For the UK specifically, after a subdued 2016 which was hampered by Brexit, investment volume in 2017 is expected to be around €1billion.

Source: BBH – Building Better Healthcare – 15-March-2017