Update 13 June 2023

Update 13 June 2023

As I am writing this we are enjoying another beautiful summer day her in the Netherlands. I hope that you are also able to enjoy the summer weather. There is, of course, news to be covered related to the Dutch healthcare sector. In this update we cover:

  • Further consolidation in the diagnostics sector. Who will be next?
  • Large traditional Dutch healthcare conglomerate to (finally) be split up. What has taken so long?
  • New large acquisition in the veterinary sector. Will the sector follow the same process as dentistry?
  • Private equity important player in healthcare related M&A. Will the boom in M&A continue?

Further consolidation in the diagnostics sector

In our previous update we wrote about the acquisition by Unilabs of AtalMedial. We suggested that further consolidation of the diagnostics sector is very likely, and this was confirmed last week by an announcement from four healthcare organizations in the Amsterdam area.

The four organizations (two hospitals (Amsterdam UMC and OLVG), the municipal health services (GGD), and Sanquin Diagnostics) have announced that they will work closely together under the brand of Glia Diagnostics. According to the four companies, the need to cooperate is driven by shared patients, increased demand for complex laboratory tests requiring specialized equipment, and challenges in finding and keeping staff. In a first step, activities will be coordinated across the four independent organizations, but a move to a separate organization is expected to take place in the future.

For most Dutch healthcare providers the current “standard” is that each hospital / provider has its own diagnostics lab. There is a clear need for scale and consolidation and joining forces with other providers in the same geography is probably seen as less threatening than being acquired by a large international player such as Unilabs. More of these types of deals can therefore be expected. Whether the resulting organizations are big enough to stay independent remains to be seen.


Traditional Dutch healthcare conglomerate to split itself up (finally)

In the Dutch healthcare sector things often take time and sometimes memories are short. In October 2020 we wrote about the decision to split up Lentis into three organizations (one for elderly care (Dignis), one for general mental healthcare and one for forensic psychiatric care). Since then, nothing has happened, and corona is probably one of the reasons for the delay. Now it has been announced that Lentis will be split into two separate companies. – Dignis, for elderly care, and Lentis, for mental healthcare.

Dignis and Lentis merged in 2007 based on the assumption that the increased size of the combined company would give a better negotiation position towards the healthcare insurance companies. In reality, this did not turn out to be the case. The current management sees the two parts of the overall organization as very different, based on:

  • Different financing forms. Dignis almost exclusively gets for long term care while Lentis is financed by at least three different financing forms (municipalities, youth care, and healthcare insurance)
  • Different requirements for staff where Dignis works with lower-educated staff while Lentis staff have a higher education and are more specialized
  • Staff with different collective labor agreements

Many mergers in the Dutch healthcare sector have been unraveled in the last few years as potential advantages have been difficult to realize and complexity costs have increased. However, there are still many companies (typically traditional not-for-profit) that need to make a thorough analysis of their overall portfolio.

Further consolidation in the veterinary sector

In the update of 17 August 2022 we gave an overview of the Dutch veterinary care sector and the increasing role of private equity in the ongoing consolidation of the sector. One year ago the two largest Dutch chains (Evidensa and Anicura) were owned by Swedish P/E companies. UK-based veterinary operator VetPartners is now rapidly catching up the Swedish chains through two acquisitions of smaller Dutch-owned chains. Earlier this year, VetPartners acquired DierenDoctors with fourteen locations, and it recently acquired Dierenartsen Groep Nederland (DGN) with 33 locations (deal valued at €70-80 million).

It can be expected that P/E-based consolidation in the sector will continue as the Dutch market is very attractive:

  • Strong economy where ownership of pets is high, and owners are willing to pay for healthcare for pets
  • Free price-setting with limited regulations and no strong buyer such as an insurance company specialized in healthcare for pets
  • Excellent opportunities to improve the profitability of acquired locations through improved pricing and reducing costs through scale advantages and improved management

Private equity key driver for M&A in the Dutch healthcare sector

JBR is a Dutch corporate finance advisor that has recently published an overview (in Dutch) of all major M&A transactions in the Dutch healthcare sector (and sub-sectors) in the period 2019 to 2022.Key findings include:

  • Number of transactions in 2022 (173) slightly down from 2021 but still higher than the average for the four years
  • Highest share (36%) of transactions is in the dental care sector and typically involve chains (often P/E-owned) growing by buying existing locations
  • The number of transactions in long-term care is declining. Most of the transactions are related to elderly care and uncertainties related to the regulatory situation and tariff development has muted interest. In addition, many of the large chains have grown strongly in the last few years and are now in a consolidation phase
  • The vast majority of the deals are in the commercial sector and more than 50% involve private equity or P/E-owned companies. To a large extent this is driven by the dental care sector, but the share of transactions involving P/E has increased strongly in other sectors as well since 2019
  • The most active PE-companies in the Dutch healthcare sector (directly or indirectly through owned companies) are Nordic Management, HC Partners and LivingBridge

The Dutch healthcare sector is clearly still an attractive market that is in a fairly early stage of consolidation. A continued high level of M&A activity can therefore be expected to continue.