May17

Update 17 May 2022

Update 17 May 2022

Sorry for the long wait since my last update. The delay was due to a combination of a wonderful two-week vacation in Sicily and lots of work with ongoing projects. However, I have now been able to find the time to write a new update on the Dutch healthcare market with news about:

  • Acquisition of Dutch laboratory by Eurofins. Will more consolidation follow?
  • Major changes announced to financing of youth care. What will be the consequences for commercial operators?
  • M&A activities in healthcare sector grow again. Will the growth continue?

Acquisition of PAMM by Eurofins

PAMM is a medical laboratory servicing four hospitals in the south-central part of the Netherlands (Eindhoven and Helmond) and other clients such as GPs, the regional health authorities, etc. PAMM is organized as a foundation, and has approximately 250 employees PAMM helps it clients by conducting diagnostics tests based on biological material. In the last two years a major part of its business was analyzing material resulting from Covid19 tests.

As a foundation PAMM had limited access to new capital and PAMM management felt that it would need an investor to finance expanding the activities and introducing innovative technologies. After a long and complicated process involving complex discussions with major clients and resistance from the professional staff of microbiologists PAMM has agreed to be acquired by Eurofins. The deal has also been approved by the Dutch Healthcare Authorities (NZa) and the Dutch Anti-Trust and Competition watchdog (ACM).

Eurofins conducts a wide range of testing and analytical activities in areas such as food, environment, pharmaceuticals, etc. It also has activities related to clinical and diagnostic testing. Eurofins has a total of 58.000 employees and has nine hundred laboratories in fifty-four countries. Eurofins is already active in the Netherlands, but the acquisition of PAMM is its first step in the local healthcare sector.

The Dutch market for diagnostic testing and laboratory-related services is very splintered and a consolidation and professionalization of the sector is long overdue. The process has started with actions such as the acquisition of Saltro by Unilabs and the consolidation of the pathology departments of individual hospitals.  This trend is likely to continue, and it will be interesting to see whether Eurofins will make any further acquisitions.

Major changes to be made to youth care

In 2015 the responsibility for youth care (health and social care) was transferred to the Dutch municipalities. Since then, it has been a so-called “hoofdpijn-dossier” (headache dossier). Key issues have been growing costs (from €3.6 billion in 2015 to €5.6 billion now), many complaints about quality and accessibility of services (especially for children with severe / complex issues), and a strong growth in the number of suppliers (see here for a recent update on the sector).

The new coalition government announced that they wanted to save €500 million on the costs for youth care. This plan was met by severe complaints from the municipalities and a refusal to cooperate with the central government on reforming the sector. The minister in charge of youth care recently announced that the municipalities will not have to deal with reduced youth care budgets. In addition, a broad range of reforms were announced:

  • Lighter / less complex forms of youth care will no longer be contracted. Youth care is now used by one in seven Dutch children and much of the care provided is for light issues such as “exam stress.” Parents will in the future have to pay themselves for this type of help
  • There will be co-payments for many services (this is intended to finance the €500 million planned saving)
  • Care activities where results are not “proven” will no longer be contracted / financed
  • “Excessive profits” for providers will be curtailed
  • The number of youth care providers with contracts will be reduced (currently estimated at 6.000)
  • Municipalities will be forced to coordinate and standardize their contracting processes and reporting demands to reduce complexity for providers

The government clearly has the intention of reducing demand for “light” youth care services and making these services less attractive for service providers. The goal will be to increase the availability and attractiveness of providing complex youth care services such as help with eating disorders, assistance to youth with multiple chronic issues, etc. and reducing the waiting lists for these services.

The overall goals of this process are positive. It is clear that it will have drastically negative consequences for many small youth care providers who will not get new contracts or will face lower tariffs or clients who will need to cover co-payments. It will be interesting to see the effects of PE-owned companies like Mentaal Beter that gets approximately 50% of its revenues from youth care.

Robust growth in healthcare M&A activity

A recent report from Deloitte highlights the continuing growth in Dutch healthcare related M&A activity. After a dip in 2020 healthcare related M&A in 2021 grew to 116 transactions (only transactions with a value higher than €5 million) with a total value of €2.7 billion. In addition to large acquisitions such as Bergman, Equipe, and Mentaal Beter there were many smaller add-on transactions in sectors such as dentistry, ophthalmology, physiotherapy, etc.

Private equity plays a significant role in the healthcare M&A activities. In 2021 PE-companies, directly or through owned companies, conducted seventy-four transactions (64% of the total). Fourteen of these transactions were for healthcare operators (i.e., not suppliers or life science companies).

Deloitte expects healthcare to stay a vibrant sector for M&A activities and expects that private equity will continue to be a major buyer of assets in the sector. It will be interesting to see what the next major acquisition will be.

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