Update 6 August 2020
After a wet and relatively cool July summer seems to have finally arrived in August. Summer is relatively quiet but there is always some news. For this update we cover:
- Decline in healthcare real estate investments. Will investments return to earlier levels?
- ODG stops sale of home-care business. Will it look for a new buyer?
- Middin stops with elderly care. Will other traditional operators also review their portfolios?
- In our snapshot we give a review of Mentaal Beter, a national provider of outpatient mental healthcare
Decline in healthcare real estate investments
In a recent report CBRE provides an overview of the Dutch market for healthcare real estate. Investments in the first half of 2020 (€327 million) declined by 33% compared to the same period last year. Twenty present of the investment volumes in the first six months of 2020 came from one deal, the acquisition of a large portfolio of nursing homes in the northern part of the Netherlands by an investment company (Estea Capital) from Vestia (a large housing corporation). Estea is financing its purchase through a bond offering in the public market.
According to CBRE the decrease in investments in not a sign of less interest from investors, but due to (temporary) supply-related issues due to corona (other priorities, longer processes, etc.). This is supported by yields, which have increased from the second half of 2019. CBRE believe that the reduction in transaction is temporary as overall demand for healthcare related real estate will increase (even with expected corona-related effects such as a move toward more activities taking place digitally and a temporary reduction in the demand for nursing home care).
Ongoing deal in home-care sector aborted
TSN was one of the largest providers of home-care services in the Netherlands. The company went bankrupt in 2016 after a long period of financial problems due to a mismatch between employee-related costs and the tariffs paid by municipalities. A large part of its operations were taken over by Buurtzorg (where they are now profitable). The name and the remaining activities were acquired by ADG (a large group mainly offering facility-related services such as cleaning).
Last year ADG seemed to be withdrawing from the healthcare sector as it announced the sale of TSN to Espria (a large traditional healthcare provider) and Zorgwerk (staffing solutions for healthcare providers) to NPM Capital. Recently ADG announced that the process of transferring TSN to Espria is being stopped. Main reasons given is that the process is taking too long leading to uncertainty among TSN employees. The reason for the long process is extra-long process from the ACM (Authority for Consumers & Markets) who are worried about anti-competitive effects in the main geographies where TSN is active. It will be interesting to see whether ADG will seek a new buyer or decides to keep the business.
Middin stops with elderly care
Larger traditional Dutch providers of healthcare services are conglomerates with a broad range of different services, client groups and geographies. Usually this is not the result of a coherent strategy but due to various mergers and new activities started by enthusiastic staff members. The complexity costs related to the variations in the portfolio are a key driver for the high costs and low margins of these groups. Usually restructuring is only carried out after (almost) bankruptcies as was the case with Careyn in 2017-18 and more recently with Pluryn.
A recent example of an organization carrying out a planned portfolio restructuring is Middin. Middin is specialized in disabled care, but also has a nursing home in Rotterdam. It has seen the complexity of providing good nursing home care increasing and has therefore decided to transfer its nursing home and related activities to Laurens (a large organization mainly focusing on elderly care).
The list of traditional Dutch healthcare organizations with complex portfolios is long – who will be the next organization to carry out and implement a strategic portfolio review?
Snapshot of a Dutch private healthcare operator: Mentaal Beter
Mentaal Beter was started in 2004 with the goal of providing better outpatient mental healthcare. By 2010 the company had 100 (small) locations and approximately 400 qualified employees. In 2010 Holland Ventures invested €5 million in the company for a substantial minority stake. In 2014 the company was acquired by NPM Capital.
Today the company provides a broad range of psychiatric / psychological help to children / young adults and adults. Revenues in 2019 was approximately €50 million, up from €35 million in 2018. The company made a number of acquisitions in 2019, but most of the growth in 2019 revenues was organic. 2019 EBITDA was €1.9 million, down from €2.2 million in 2018. The decrease in profits was mainly due to one-off costs related to acquisitions. The company employs 529 people (367 FTEs), 95% of whom carry out client related activities.
The NL Mentaal Beter Group consists of Mentaal Beter, Autodidakt (a company specializing in the development of youth with problems at school with revenues of €15 million) and some other smaller companies. The CEO of the group is Martin de Heer who joined the company in 2009 when his existing company was acquired by Mentaal Beter.