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Healthcare, technology drive business openings

Entrepreneurship is the way out of a weak labor market

06/20/2022

The gradual return of the flow of people and the change in habits, with the expansion of remote work and the acceleration of digitalization, generated an increase in new firms in 2021, but with a greater bet on activities like healthcare, technology and technical services, which had already emerged before the Covid-19 pandemic and are now gaining ground more quickly. Entrepreneurship is also growing as an alternative to a labor market that is still recovering, according to specialists.

Although commerce in general remains the leader in the activity profile of new companies, the sector has lost space to segments linked to healthcare and social services, technical and information technology (IT) activities, or professionals who, supported by the flexibility of remote work, have decided to become entrepreneurs.

At the same time, the accommodation and food group, which includes hotels and restaurants, lost space, although it maintains a recovery curve in new businesses. This is the general trend verified by data about the opening of companies from boards of trade in the states of São Paulo, Bahia and Paraná. The three states accounted for about 40% of all new businesses registered last year in the country, according to data from the federal government’s Business Map.

In São Paulo, there was a record in the start of new companies in 2021. According to data from Jucesp, the state’s board of trade, the number of new businesses totaled 288,500 last year, up 28.7% compared to 2020 and 28.5% against 2019, the year before the pandemic. Terminations also increased, but with a much smaller number and in a more decelerated way.

In 2021 a total of 120,900 companies closed doors in São Paulo, up 16.2% from the previous year and 0.5% against 2019. The numbers for the state do not include data from Individual Micro-Entrepreneurs (MEIs).

A look at the data over a longer period shows a change in the sectors that today attract those who want to open their own business. In São Paulo, the general commerce group, including retail and wholesale and the sale of vehicles to end consumers, represented 33.8% of the new companies in the state in 2014, but has gradually lost share over the last few years, reaching 26.8% last year. The data indicate this shift was already underway before the pandemic. In 2019, the sector’s share was 28.5%. That is, the number of new businesses in the segment grew over the seven years, but at a slower pace than the total number of new enterprises.

The commerce space was taken up by health and social services activities, which jumped to 9.6% last year and to 6% in 2019 from 2.5% 2014. Information and communication, which brings together IT-related areas, advanced to 7.7% last year and 6.6% in 2019 from 4.6% in 2014. Professional, scientific and technical activities – which include diverse branches such as consulting, auditing, business management, firms in architectural, engineering, advertising and market research services – advanced to 12.1% in 2021 from 6.78% in 2014.

The state of São Paulo continues with a record number of new companies in 2022. From January to May there were 123,500 new businesses, or 8.4% more than in the same period in 2021.

In Bahia and Paraná, the dynamics of change in sectors were similar. With a total of 37,827 new companies in 2021, Juceb, Bahia’s board of trade, also recorded a historic peak last year and a change in the formation of new businesses over a longer period. From 2014 to last year, the share of general commerce among new companies opened in the state, including headquarters and branches, fell to 40.5% from 45%.

Even in a state recognized for its tourism vocation, the share of lodging and food ventures, a group in which restaurants and hotels are included, dropped to 4.1% in 2021 from 7.1% in 2014. In 2019, the year before the pandemic started, the share was 5.1%, showing that the segment, although growing, was already expanding at a slower pace than other activities. The data for Bahia do not include MEIs.

The data from Jucepar, Paraná’s board of trade registry, includes MEIs and also points to a record number of new companies in 2021, with a total of 268,440 companies, an increase of 14.8% compared to the previous year. Also among Paraná companies, commerce in general is the main sector among new businesses, but its share fell to 26.5% in 2021 from 32.3% in 2015. There was an increase in the participation of professional, scientific and technical activities, health and social services, and information and communication. Together, these segments advanced to 14.1% from 8.7% in the same period.

Carla do Nascimento, an economist at the coordination of economic situation of the Superintendence of Economic and Social Studies (SEI) of the Bahia government, says that the advances in some activities were accelerated by the pandemic, but are within a change that was already happening as a reflection of technological innovation and increased demand. This is the case of the health and information technology sectors, she points out.

New businesses in health and social assistance advanced to 9.5% from 4.8%. Retail and even sectors linked to tourism may have felt the economic downturn. Ms. Nascimento recalls the period covered includes 2015 and 2016, when the country’s GDP contracted, without a complete recovery from 2017 to 2019. In 2020 there was the recession within the pandemic, with recovery in 2021.

The economic contraction of the pandemic, explains the economist, led many entrepreneurs to close their doors in 2020 and part of 2021. With the recovery of the economy last year, however, there was a bet on new businesses. At the same time, with the advance of digitalization and remote work, people who lost their jobs or even people who had jobs decided to bet on their own enterprises, which also, she says, can help explain the performance of the group of professional, scientific and technical activities, which advanced to 7.6% from 4.9% in 2014.

Ademar Bueno — Foto: Silvia Zamboni/Valor

Ademar Bueno — Foto: Silvia Zamboni/Valor

Ademar Bueno, head of Jucesp, points out that the pandemic has changed the work system of many professionals. In some activities that were almost exclusively done in person, he says, they started to work only remotely during the most severe period of the health crisis and, with the most recent opening of the economy, the hybrid system was adopted. This led to a professional and activity reorganization that also required the start of new companies, he says.

Mr. Bueno also points out that about 40% of new companies set up in São Paulo have among their partners some tax ID number that is already in another company. It is someone who closed a business that broke down, he says, and who, after regularizing the situation, decided to start up a business again. He points out that programs offered by the state government have helped in this regard.

Despite the fact that the accommodation and food group has lost share in the start of new companies – to 4.8% last year and 6.3% in 2019 from 7.7% in 2014 –, Mr. Bueno points out that bars and restaurants still remain a big bet for new businesses. In the state of São Paulo, according to him, 40 companies are opened in this area per day, on average. Closures are also high, about 30 a day.

*By Marta Watanabe — São Paulo

Source: Valor International

https://valorinternational.globo.com/
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Healthcare groups lose profit margin

Hapvida was the most affected operator in the quarter — Foto: Divulgação
Hapvida was the most affected operator in the quarter — Foto: Divulgação

The 14 publicly traded healthcare companies — hospitals, diagnostic medicine laboratories, and health insurance companies — had a loss in profitability in the first quarter, when compared to the same period last year. The earnings reports were impacted by the macroeconomic environment, which led to more cancellations of health insurance plans, and by the wave of the omicron variant of Covid-19 earlier in the year, which reduced the performance of other medical procedures and generated lower revenue for service providers.

Besides this, as most of the healthcare companies are undergoing a strong process of mergers and acquisitions, which require resources and increase indebtedness, the financial result has deteriorated with the rise in interest rates, reflecting on the net income.

The most affected in the quarter were operator Hapvida and broker and administrator of medical insurance plans Qualicorp, both with great loss of clients. Hapvida, which concluded its merger with NotreDame Intermédica in February, had 431,000 contracts suspended and another 157,000 cancelled due to layoffs in companies that offered the benefit to their employees. There were 524,000 new sales, but they were not enough to cover all the losses. The same happened with Qualicorp, which gained 115,100 clients, but had 131,100 losses in its portfolio.

On the day the quarterly numbers were released, Quali’s shares depreciated 13% on the stock market, and Hapvida’s dropped almost 17%, due to the weak results, but also because of the prospects. The scenario from now on is uncertain, with high interest rates and high increases in the health insurance plans, with prices expected to swell between 15% and 20% on average.

On the one hand, the recomposition of medical inflation will provide improvement in revenue and other gains to the companies, but at the same time there is a higher risk of default and withdrawal from health insurance plans. “A weak 2022 start, but is the worst already over?” was the questioning made by Itaú BBA analysts, in a report.

Insurers SulAmérica, Bradesco Saúde, and Porto Saúde saw their loss ratio increase in the first quarter, which was offset by the improvement in the financial result. The insurers have a better indicator because they have a larger volume of reserves than the operators and are not promoting acquisitions at the same pace as their competitors.

OdontoPrev, the largest operator of dental plans in the country, also felt the impact of the economic environment. In the first quarter, the company lost 28,000 users and the average ticket fell 1.2%.

The five hospital groups – Rede D’Or, Mater Dei, Dasa, Kora and Oncoclínicas – saw the EBITDA margin fall, with variations between 0.2 to 3.7 percentage points. At the beginning of the year, the spread of omicron made the average ticket of the procedures performed in the hospitals lower. In Rede D’Or, the reduction was 3.2%, and in Mater Dei, 12%. “We see the drop in ticket, pressure of margins and high leverage as a worrisome combination for the results in the short term,” says XP in a report.

Among the diagnostic medicine chains, there is loss of profitability due to Covid and negative financial results. But the performance among them varies a lot. Fleury and Hermes Pardini reported double-digit revenue growth, but the bottom line of the earnings report was pressured by financial expenses. Alliar, taken over by businessman Nelson Tanure, had worse results in its main indicators. The company attributed the bad performance to the Covid wave, which led to a reduction in elective exams and professionals leaving the company.

In common, the executives of the companies highlighted in their conference calls with analysts and investors that the scenario in March was of recovery, with a lower volume of layoffs in the companies that contract health insurance plans. Besides this, there is a positive expectation with the increase of the tickets coming from the price hikes of the plans and the resumption of elective procedures, which generate more profit, with the easing of Covid infection levels.

Most of the CEOs and financial heads of the healthcare groups said that, despite the current level of the Selic rate and its impact on the earning reports, they do not intend to reduce the growth strategy through acquisitions. They pondered that the analyses are more careful, but there was no change in plans. Hapvida has 20 assets for purchase on the radar. Dasa informed that the acquisitions will not take place at the same pace as in the last two years. In this period, the company, controlled by the Bueno family, promoted nine acquisitions with disbursements of $2.5 billion.

In recent months, the highlight deals were the acquisition of SulAmérica by Rede D’Or and the joint investment of R$678 million by BP — Beneficência Portuguesa, Bradesco Saúde, and Fleury — in an oncology company.

Source: Valor International

https://valorinternational.globo.com

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Healthcare companies still have appetite for acquisitions

Rede D’Or São Luiz reported profit of R$419.5 million in the fourth quarter of last year, up 38.5% year over year — Foto: Guilherme Pinto/Agência O Globo
Rede D’Or São Luiz reported profit of R$419.5 million in the fourth quarter of last year, up 38.5% year over year — Foto: Guilherme Pinto/Agência O Globo

Even after strong consolidation movements in the healthcare industry in recent months, companies maintain the appetite for more deals. Last week, executives from Dasa, Mater Dei and Rede D’Or cited the fact during conference calls. Among the largest recent acquisitions is the purchase of SulAmérica by Rede D’Or, announced in February.

“People talk about a game of musical chairs [in the face of various consolidations]. But we are actually having tectonic plate movements. The sector is changing significantly and quickly,” said Rafael Cardoso Cordeiro, Mater Dei’s chief financial officer.

Mr. Cordeiro did not elaborate, but said that there are still major consolidation moves on the radar. “The Mater Dei network is an important piece. We have been approached and we look for players in our sector. We are important players in the changes that are happening in the sector,” he said.

The company has 2,723 beds in its portfolio, considering recent acquisitions such as Hospital Santa Genoveva and Grupo Porto Dias. Since its debut on the stock exchange, in April 2021, the group has made six purchases – of five hospitals and a data analysis and artificial intelligence company – investing about R$2 billion and increasing twofold its service capacity.

In 2021, Mater Dei reported a record net revenue of R$1 billion, up 43% year over year. Overall, the sector has been supported by the return of elective procedures and drop in spending with Covid-19.

The largest hospital group in the country, Rede D’Or is moving forward to buy SulAmérica, an insurance company that has 4.5 million users of health and dental insurance. According to the terms of the deal, which still lacks regulatory approvals, SulAmérica’s shareholders will receive 13.5% of D’Or, with a premium of 49.3% over the share price on February 18. The purchase will be subjected to a shareholders’ meeting on April 14.

Rede D’Or’s CEO Paulo Moll said that the deal with SulAmérica does not interfere in the company’s plans to continue growing via acquisition. Rede D’Or added 2,213 beds with 17 acquisitions until the first quarter of this year since its IPO. “We don’t change companies’ business models. Most of Rede D’Or’s revenue comes from operators. And in SulAmérica’s case, we obviously see a lot of growth opportunity due to how strong the brand is,” he added.

Otávio Lazcano, chief financial and investor relations officer at Rede D’Or, was optimistic about the future of the business and said that there is room for several synergies, including better use of real estate assets, which can free up cash, and transaction cost reductions between the companies. There are also fiscal and tax efficiencies that the group hopes to capture.

“[We also see] potential reduction in the debt of the expanded company. Rede D’Or has a very long cost of capital and debt term. And SulAmérica is cash positive and will contribute to EBITDA and allow us to reduce net debt,” he said.

The scenario brings strength for the company to accelerate future investments and, according to the executive, opens a window for dividend distribution. He said he was unable to provide monetary estimates for synergies for the time being. The company hopes to have a final verdict on the deal from regulators later this year.

Rede D’Or São Luiz reported profit of R$419.5 million in the fourth quarter of last year, up 38.5% year over year. Between January and December, Rede D’Or’s net income grew 265%, to R$1.67 billion. Net revenue advanced 23.2% in the quarterly comparison, totaling R$5.13 billion.

Dasa, a market leader in medical diagnosis, began its acquisition process in the hospital segment about a year and a half ago and since then has invested about R$2.5 billion in the purchase of nine hospitals. Currently, it has 15 hospital units, which together have 3,500 beds, the second place in the segment behind Rede D’Or.

Dasa’s CFO Felipe Guimarães said the company remains attentive to acquisition opportunities this year, although he argues that the focus for 2022 is to integrate the assets already acquired.

“We believe there are good opportunities to continue consolidations. It tends to be a year in which acquisitions continue, although at a lower level than in 2021,” he said.

On Friday evening, the company unveiled the purchase of Centron – Centro de Tratamento Oncológico, in Rio de Janeiro. In the fourth quarter, the company concluded the acquisition of Hospital da Bahia and São Domingos, which added 679 new beds to its portfolio.

Source: Valor International

https://valorinternational.globo.com

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Government mulls opening healthcare data to encourage competition

Marcelo Queiroga — Foto: Cristiano Mariz/O Globo
Marcelo Queiroga — Foto: Cristiano Mariz/O Globo

The federal government is mulling over a provisional measure — a legal act that allows the president to enact an interim law prior to Congress voting — aiming at increasing competition in the health insurance market, by the creation of an “open health” system. It is inspired by the open banking platform — a system conceived by the Central Bank to give greater transparency to the banking sector.

Health Minister Marcelo Queiroga told Valor that the idea was formulated from conversations with Central Bank President Roberto Campos Neto and has already had the approval of President Jair Bolsonaro in recent weeks to implement the plan in the country.

The measure is still being developed in Brasília, but the main idea is that, similarly to what is being implemented in stages in Brazil with the banks, there will be greater transparency in the health insurance sector. A large, extensive national registry of data on patients and indicators on supplementary health would be created to be shared between operators and patients.

According to the Mr. Queiroga, the sharing of client data, through the “open health” platform, would allow an operator to offer a cheaper plan for a patient who uses few hospitals or healthcare services.

Government officials also explain that, in the future, the intention is to facilitate the portability of beneficiaries from one plan to another, which currently takes about 90 days.

Mr. Queiroga believes that if there is more competition and supply of health plans, Brazil’s public healthcare system (SUS) can stop being overloaded and part of its public migrate to the private sector.

The “open health” is inspired by a model adopted in the financial market in Australia and is inserted in the general guidelines approved by the National Council of Supplementary Health (Consu) at the end of last year. It is supposed to encourage a greater offer of health services, stimulate the appearance of more operators in the sector, and reduce the prices in this market in the future.

The Consu, in turn, is a collegiate body formed by ministers Queiroga, Paulo Guedes (Economy), Anderson Torres (Justice) and Ciro Nogueira (Chief of Staff).

In the evaluation of the health ministry, there is room for the entry of more companies in the supplementary health segment, because there were more than 2,000 health plan operators in the country at the beginning of the 2000’s, when the National Agency for Supplementary Health (ANS) was created.

Last Monday, Valor released a study conducted by CADE, the antitrust watchdog, which indicates that the number of health insurance companies dropped 47% between 2011 and 2020. This trend of market concentration over the last decade has been criticized by ministers.

President of the Brazilian Association of Health Plans (Abramge), Renato Casarotti says he has seen the Minister of Health mention many times the benefits of “open health” in public events in the sector. The entity, however, has not yet been called to a specific meeting on the matter.

“The idea is good, it is timely with the General Law of Data Protection, of information belonging to the beholder. The logic makes a lot of sense,” says Mr. Casarotti. “The important thing is to understand how this fits into the health sector, which is a little different from the banking sector.”

According to him, there are two main issues that tend to limit at some level the impacts of the federal government’s proposal. The first is that medical information about patients is still “very fragmented” in Brazil, without the existence of a single medical record.

“In the health sector, there is data with the doctors, hospitals, laboratories, operators, that still don’t talk to each other,” he said. “If the single medical record existed, then ‘open health’ would make perfect sense.”

Source: Valor international

https://valorinternational.globo.com/

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