Following Dasa-Amil and Rede D’Or-Bradesco Seguros mergers, consolidation will now focus on units in cities with over 200,000 inhabitants

24/07/2024

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Kora’s Meridional hospital in Espírito Santo — Foto: Divulgação

In the wake of recent hospital mergers between Dasa and Amil and Rede D’Or with Bradesco Seguros, the healthcare sector is starting to map out future scenarios and steps. Although the current environment isn’t ideal for acquisitions, there is potential for new deals in the market.

There are assets on the radar and consolidators with less leverage and greater working capital, such as the Moll family’s company, the controlling shareholder of Rede D’Or, and Hapvida, which can pursue new fronts. A survey by investment boutique BR Finance shows that 139 hospitals have already been acquired by major groups. Currently, around 270 units remain in the hands of their founders, located in cities with more than 200,000 inhabitants. Of these, 96 have over 100 beds, and 176 have between 50 and 100 beds.

Targets are primarily professionally managed assets, which present less risk. According to sources, there is market interest in Grupo Santa, which has six units, including Hospital Santa Lúcia in Brasília. Last year, Bradesco Seguros acquired 20% of the network, and there is no preference from the insurer to purchase the remainder. Generally, insurers like Fleury and OdontoPrev control their assets. However, in the hospital sector, Bradesco Seguros opts for partnerships, holding around 50% stakes with various groups like Mater Dei, Albert Einstein, and Rede D’Or, with these companies managing the hospitals, which is not Bradesco’s core business.

The market is also watching Hospital Care, backed by Crescera and Abaporu funds (from the family of Elie Horn, founder of Cyrela), and Kora, controlled by private equity firm H.I.G. However, interest in these cases is in some of their hospitals, not the entire group, making it difficult for controlling shareholders to retain less liquid assets.

Kora is valued at around R$540 million on the stock market, with some of its hospitals commanding higher figures in negotiations. The group owns the Meridional network, with seven units in Espírito Santo, and Hospital Anchieta in Taguatinga (Federal District), boasting a substantial number of beds and well-known brands. Kora is currently at an impasse, with minority shareholders and the controlling shareholder in conflict over a delisting offer at R$0.70 per share, which displeases smaller shareholders. “One solution could be selling assets to reduce leverage, even if it makes the company smaller,” a source familiar with the matter said.

Hospital Care, which operates in six cities nationwide, attempted a public offering in 2021 and negotiated selling about a third to Bradesco Seguros in 2022, but the talks did not advance. Since last year, its main asset, Hospital Vera Cruz in Campinas, São Paulo, has faced new competition from a large hospital built by Rede D’Or nearby.

In 2023, Hospital Care reported a loss of R$228 million, up from R$43.8 million in 2022. Its operating cash flow was negative by R$150 million. The first quarter of this year showed improvement, with losses halving to R$22 million.

There are also movements involving recently acquired assets being sold off. Last year, Hospital Care sold the São José hospital, Austa, which it had acquired in 2020, to a group from Goiás. In May, Mater Dei reversed the acquisition of Hospital Porto Dias in Belém, which was repurchased by the founders. This operation, incorporated in 2021, faced working capital difficulties, negatively impacting Mater Dei’s balance sheet.

“Many assets acquired during the last M&A wave have not yet captured synergies or integrated fully in a market that has undergone significant changes in recent years,” said Luiza Mattos, a partner at Bain & Company.

Fernando Kunzel, a partner responsible for mergers and acquisitions at JGP, stated that the healthcare sector’s chessboard is moving but awaiting a less intense wave compared to the pandemic period when dozens of operations took place. He anticipates a valuation disconnection, potentially delaying some transactions. “There are buyers for hospitals, but the numbers aren’t adding up. Some hospitals were acquired at up to 12 times EBITDA, and now offers are around six times,” he said.

Renata Rothbarth, a partner at Machado Meyer, noted that today’s healthcare landscape is quite different from 2021, when there was an acquisition boom. “Consolidators are now very attentive to hospitals’ credentialing agreements with health plan operators,” the lawyer said. Currently, one of the biggest problems for hospitals is working capital due to extended payment terms from health insurance plans.

Other assets that may draw interest are those excluded from the Amil and Dasa merger. Sources indicate that there are interested buyers for Klinikum hospital in Fortaleza and Promater in Recife, both owned by José Seripieri Filho. There are also Dasa units not included in the deal, and the Bueno family’s company has indicated the possibility of divestment. These include hospitals in Bahia, São Domingos in Maranhão, and the AMO oncology clinic network in Bahia.

These assets are expected to become acquisition targets since standalone hospitals without a network lack scale and profitability. Hospitals with fewer than 150 beds are not considered profitable; most hospitals in the country have less than 50 beds.

“Currently, there are few transformational combinations, and most significant hospitals have already been acquired by consolidators,” said Ms. Rothbarth of Machado Meyer.

Additionally, movements from Aliança, controlled by businessman Nelson Tanure, are anticipated after an unsuccessful bid for Amil. About two months ago, Oncoclínicas announced the entry of Banco Master, which frequently collaborates with Mr. Tanure.

Enrico De Vettori, CEO of Gestão Hospitalar Ltda and a partner at HSI, said the sector is now adjusting post-pandemic. “We are observing two movements: companies merging to improve efficiency and balance sheets and those seeking alternatives without merging,” he said. This includes asset sales and sale-leaseback transactions.

Maximo Lima, CEO of HSI, noted this trend follows a market cycle where capital costs were very low, leading to an expansionist phase for many groups through acquisitions. “This industry is transforming, moving from a tough period [financial restructuring] to reorganization,” he said.

Grupo Santa declined to comment on its partnership with Bradesco due to confidentiality clauses. Hospital Care and Kora did not respond to Valor’s request for comment.

*Por Fernanda Guimarães, Beth Koike — São Paulo

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