Is Spanish mental health hotting up?

Recent activity in Spanish psychiatry and mental health suggests growth on this market is picking up speed. Who are the emerging consolidators? We speak to market experts following this space.

Private equity began making inroads into the sector in 2016 when Iberian investor Magnum Partners bought a 75% stake in eating and behavioural disorder specialists ITA. The company, which saw revenues of €13.4m and net profits of €1.7m in 2017, bought Previ group last year, a business with four centres in Valencia, and a psychiatric clinic in Godella. This year, under new CEO Jaume Raventós Monjo, the company has already acquired a new centre in the Barcelona region and expanded to Chile, joining competitors Grupo 5 and DomusVi.

Grupo 5, backed by Corpfin Capital since 2017, operates in a segment called ‘psychosocial rehabilitation’ and is mostly contracted by regional authorities to deliver community-based care with a mix of home care, outpatient and inpatient facilities. Last month the company acquired a neurological treatment centre in Navarra, and it announced aggressive plans to expand across the country last year.

The big fish here – DomusVi – had been focusing its expansion in its reference market of nursing homes, but this year it created the brand Mentalia Salud under which all eight of its psychiatric and mental health facilities will operate. The group acquired a facility in the Canaries with 74 beds last month – bumping DomusVi’s total mental health offering to 1,000 beds, run by a team of 550 employees.

“The private sector is playing catch up here,” says Stéphane Pichon of Your Care Consult. “We think there will be new entrants onto this market from European groups other than the French – possibly from Germany or the Netherlands.”

Even Orpea joined the bid for a position, with its acquisition of 82-bed facility Clinica Lopez-Ibor (€5m) in 2017. But a leading consolidator has yet to emerge.

“The private offer is really fragmented,” says David Alberti of Your Care Consult. “There is margin to consolidate, but with small deals. Historically, the sector has been dominated by religious orders who remain the most active players,” he adds.

“The biggest is Hermanas Hospitalarias holding 43% market share with 6,000 beds. Though non-profits are currently investing capex into current facilities and also developing homecare and daycare, it is possible private players could buy out non-profit facilities.

“One of DomusVi’s strategies with nursing homes is to buy from the Church,” adds Pichon. “So it’s something they could replicate in mental health.”

Our Analysis: The Spanish mental health sector is seeing momentum pick up as private equity and large French groups roll out their growth strategies. For now, opportunities for investment abide in small private settings, but with such a large portion of beds owned by non-profits and the public sector, it remains to be seen how the private sector will consolidate its share. Will a single consolidator emerge? Perhaps a player that can crack the delivery of integrated services – which, according to ITA’s CEO Raventós Monjo, is the private sector’s next challenge – will set themselves apart.

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

DomusVi in talks to acquire top ten French nursing home group

DomusVi is in exclusive talks to acquire a top ten French player in a bid to keep pace with rivals Orpea and Korian. We speak to a market expert about the deal and give a likely price multiple.

DomusVi, France’s largest nursing home operator by revenue, is in talks to acquire French group HPA, which owns nursing home operator Residalya and property company Patrimoine et Santé. The group had revenue of €120m in 2018 and EBITDA of €21.5m in 2017. We believe HPA is likely to go for a low double-digit multiple.

The deal will see Domus Vi buy the entirety of HPA’s share capital, taking over the operation of 35 nursing homes and residential facilities around France, with more than 2,500 beds. Residalya has 1,700 employees. The group owns the real estate of 12 of the facilities it operates and is developing three new facilities to be opened in the next two years.

“It’s quite expensive to buy in France due to the licence system, so you’re essentially buying market share,” says Stéphane Pichon of Your Care Consult. “Clearly then HPA will go for a double-digit multiple, perhaps 12-13x EBITDA. DomusVi is in a race with Korian and Orpea to maintain its position on the market, where the smaller companies are being acquired by the top players.” A price of around €280m seems likely.

Armonea was acquired by Colisee last month for 12x EBITDA, and acquisitions are the main tool used by French groups to grow in nursing homes. Though operators have also been diversifying their activities by providing domiciliary or medicalised homecare – Korian bought provider Petit Fils last November, and Orpea is acquiring assisted living facilities across Europe.

“Residalya used to be a subsidiary of Groupe Duval, a large real estate operator in France,” says Pichon. “They were partners at the group level with Dutch shareholder Ackermans & van Haaren.” Groupe Duval sold 70% its stake to Ackermans & van Haaren in 2015, and in 2018 Residalya became French real-estate investor Icade Santé’s first acquisition in the nursing home sector, when it bought 14 facilities for €189m. “This latest deal could be used by founder Hervé Hardy to either retire or buy new assets,” speculates Pichon.

DomusVi has been actively buying in Spain, Portugal and France and is also present in Chile where it bought nursing home group Acalis last November. The group had sales of €1,300m in 2017, with a total of 333 facilities across all locations.

Any deal will be subject to the approval of the French Competition Authority. It is expected to complete in Q2 2019.

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

Source: HBI International 22mar19

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

Spanish healthcare property to become the next gold rush?

Several large property portfolios will be sold in Spain within the next year, according to multiple sources, and investors have taken notice.

Property deals have historically been scarce in the country because of tax rules that mean VAT at 21% cannot be recovered from rent in the acute sector, and a fragmented nursing home sector with few private equity owners.

Elderly care is beginning to consolidate, however, with Domus VI, Maisons de Famille and others buying there, and a few property deals involving foreign investors like MPT and Primonial emerging.

“The Spanish market is opening up,” said Stéphane Pichon, managing partner of the French consultancy Your Care Consult, which has just opened an office in Madrid. “There will be some large portfolios coming up in nursing homes and we’re seeing substantial interest in them already.”

Jorge Guarner, founder and CEO of the Healthcare Activos REIT, backed by Oaktree Capital and with €500m budget, has already been active spending €65m on seven properties, including nursing homes, a post-acute facility and a hospital run by BMF.

“Private equity wants operators to focus on the OpCo and sell the PropCo, the big private equity owned groups will be selling some big portfolios soon as the market is still fragmented and they want to fund their growth,” he told Healthcare Europa.

Maisons de Famille, for example, has already sold four of its properties to his new REIT, which he says he set up to fill a gap in the market. Yields of between 6-7% are typical, he added.

The CEO of the Belgian REIT Aedifica, Stefaan Gieelens, is another investor with his eye on the market. “We look at markets that have the right mix of aging, consolidation and local government policy. In Spain, clearly, things are happening there. It’s drawing our attention, but it’s not one of our domestic markets at the moment.”

Gieelens said that getting Aedifica’s name out in the country and developing a relationship with the operators was an important step. That could make smaller deals worthwhile in the short term, though in general it prefers to buy large portfolios. “If you just sit and wait for the next portfolio to come your way, you could be waiting a while.”

Source: Healthcare Business International 12-Sep-17

Ramsay increases French margin in strong annual results

The global hospital group Ramsay reported 12.7% growth in net-profit after tax this week with margins increasing in France despite tariff cuts.

Ramsay Santé, the product of Ramsay France’s merger with General de Santé, grew EBITDAR by 0.5% to €448m in the year to June 30, 2017, with sales following narrowly behind with 0.3% growth.

That gives Ramsay an improved EBITDAR margin in France despite another year of cuts to the tariff offered to private hospitals by the French government, which helped to take 1.5% off rival Capio’s EBITDA margin in July.

Stéphane Pichon, managing partner at French consultancy Your Care Consult, put their contrasting results down to a difference in the case mix between the groups and an increased focus on emergency procedures by Ramsay.

“Ramsay did well in mental health and rehab and less well in acute care. It has also begun opening emergency departments, with around half a million visits in the last year, which helps politically when you go asking for higher tariffs. Capio, on the other hand, is much more of a focused acute care hospital business.”

Ramsay is also cleaning out its portfolio by selling off two hospitals, one to Vivalto Santé, and finalising the integration of the HPM group in Lille, said Pichon.

In its domestic market, the Australian group managed to avoid the fate of competitor Healthscope, which reported a 40% fall in NPAT earlier in August causing its share price to plummet. Ramsay grew sales 7% and EBIT 13.6% in the market, which remains its powerhouse despite global diversification. Investors were not impressed, however, and shares fell from 71 AUD to below 67 AUD.

Ramsay’s new boss Craig McNally said: “In international markets, we are looking forward to the increase in tariff in the UK scheduled for April 2018 and in France, the election of the new government has seen an uplift in business and consumer sentiment, which bodes well for the future in that country.

Pichon agreed that the business environment is improving for private healthcare in France. Concrete change to policy have yet to emerge from the new Macron government but Pichon says a tariff convergence between the health and care sides of the senior care business is on the cards, and that this would please the private operators.

“The public sector is arguing against though the government has argued that once you total both sides the tariff will remain unchanged,” said Pichon.

Looking forward, McNally said Ramsay will continue to look for more opportunities in out of hospital and outpatient care. He said: “There is also increasing potential for out-of-hospital growth opportunities in adjacent businesses like retail pharmacy, across all markets in which we operate. We will continue to seek opportunities to broaden our care beyond hospitals to deliver integrated care across an increasingly disperse ecosystem.”

Source: Healthcare Business International, 1 September 2017

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

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