The shareholders of Generale de Sante, the largest French hospital group, have appointed Rothschild to assess strategic options. Meanwhile, Medi-Partenaires is in talks with another group. Could this lead to the long-awaited consolidation of the French hospital sector?
We are told that the main shareholders of Generale de Sante are keen to find a solution before a refinancing due in September 2014. One source said: “De Agostini wants out. Mediobanca wants a solution. Ligresti is playing footsie.”
Generale de Sante saw sales fall 1.4% to €1.93bn in 2012, with EBITDA down 3.7% to €240m for a margin of 12.4% of sales. Banking sources agree that performance has been poor, but point out that the stockmarket currently values Generale de Sante at just €600m, or 2.4 times EBITDA. Debt comes to €770m.
That valuation compares to Rhoen’s EV/EBITDA of around ten times, with other quoted groups across Europe achieving even higher multiples. Generale de Sante’s low valuation reflects the group’s falling sales, as it sells off business units piecemeal to reduce debt.
Scratch the surface and French hospital operators are an unhappy bunch. Tariffs haven’t risen with inflation, yet costs are increasing. A source at an operator says: “There is now a clear tendency in favour of the public sector. We are living with attrition.”
It is against this background that several large operators are considering several mergers with the aim of creating a super-group, possibly with sales of €3-4bn.
Medi-Partenaires is in talks with Vedici. Some sort of merger involving Generale de Sante is possible. Blackstone-owned Vitalia could be another component. The aim would be to create a company large enough to speak for the 600-700 private hospitals in France, with sufficient scale to engage the government directly at the highest levels.
The fly in the ointment here is: who will pay for it?
All the private equity groups currently invested in French hospitals are known to want to sell. Our sources say that, in order to create a credible group, it would be important that many of the investors be French institutional investors rather than private equity. But a private equity house is still needed to lead and take the decisions. We are told that 2-3 are interested.
Another alternative would be for a big quoted group to step in. Australian-listed operator Ramsay has just purchased a large hospital in Toulouse, signalling renewed interest in the French market. Helios, the Fresenius-owned German hospital group, is another candidate. A Franco-German group might have more political leverage.
Or we could see an exotic buyer. Stephan Pichon at Your Care Consult points out that Chinese group Fosun International is keen to become a big shareholder in Club Med. He suggests that China has huge plans to build new hospitals, and a group with Generale de Sante’s expertise would be well placed. And there are always the Qataris.
Our Analysis: We can see the apparent logic. A really efficient major chain could be attractive to financial investors as well as the French state, which could use it as a threat and an example for the public sector. A merger would probably boost margins although getting more than 1-2 percentage points of EBITDA out would, we think, be difficult.
We are not convinced that size necessarily equates to political influence. Why would a group twice the size of Generale de Sante fare better with a socialist government that, while weak, is still hostile?
As far as private equity is concerned the price would need to be low enough to allow for some genuine upside. That suggests a low entry price, given the apparent willingness of the French state to continue to erode private hospital margins.
Solutions involving industrials sound good. But Helios has only once strayed out of its home market, when it embarked on a disastrous adventure in Austria. Ramsay’s share price would likely fall like a stone if it invested in socialist France, rather than in a developing country with high growth prospects.
Source: Healthcare Europe / June 12th 2013