Update 2 August 2022
From the “bounced” emails I am receiving I see that many of you are already enjoying your holidays. I expect that many more of you will be on leave in August. I hope that you are all enjoying your breaks.
Even though the summer is a quiet time here in the Netherlands as well, there is still news to report. In this update we cover:
- Consolidation continues in the Dutch healthcare sector. Who will be next to be acquired?
- Acquisitions in the healthcare sector to become easier. Why is the ACM against this move?
- High investment volume in the healthcare real estate sector in the first half of 2022. Will this continue?
Consolidation continues in the Dutch healthcare sector
The Dutch healthcare sector in general has many small regional operators and the commercial healthcare sector also has a fairly low level of consolidation. However, consolidation is an ongoing theme. In the update of 19 October 2021 we gave an overview of the strong consolidation in the commercial nursing home sector, and in the update of 11 July 2018 we described the ongoing consolidation of the dentistry sector.
Recently there have been two more examples of consolidation in the commercial healthcare sector.
- Domus Magnus has acquired Valuas Zorggroep. This is an example of medium-sized nursing home operators joining forces to achieve economies of scale and improve their competitive position towards the large players such as Korian and Orpea. Domus Magnus was one of the first providers of high-end private nursing homer care in the Dutch market and is 75% owned by Navitas Capital (a Dutch private equity company). Valuas is another provider of hi-end nursing home care. In mid-2022 Valuas doubled in size by acquiring Nova Zembla Zorg. The combined group will have thirty locations, seven hundred clients and 1.250 employees. This makes the new group one of the largest commercial nursing home operators in the Dutch market outside of Orpea and Korian.
- Another sector that is growing and consolidating is specialist clinics. The two largest Dutch chains were last year acquired by private equity (Bergman Clinics by Triton and Equipe by Nordic Capital). A key goal of both acquisitions was to give the companies a “war chest” to acquire smaller competitors in the Dutch market. While Bergman was refused permission to acquire Mauritsklinieken, Equipe has recently announced the acquisition of Annotommie. Annotommie is a medium-sized chain of clinics focused on orthopedics and will be integrated with Xpert Clinics (Equipe’s chain focusing on orthopedics and hand and wrist issues).
There are rumors on the street concerning new potential deals and it will be interesting to see who is acquired by whom and what the effects of the current uncertainties regarding politics and inflation will have on the timing and valuation of deals.
Acquisitions in the healthcare sector to become easier
The Dutch Authority for Consumers and Markets (ACM) has the responsibility for following up on consumer interests, and in the case of the healthcare sector, the insurance companies. To ensure that these interests are not damaged by mergers and acquisitions all deals above a certain size must be presented to the ACM and can only proceed if the ACM gives permission. Currently, deals must receive permission from the ACM if combined organization will have revenues of more than €55 million or if one of the parties has (healthcare-related) revenues of more than €5.5 million. Given the highly regional and fragmented structure of the Dutch healthcare sector, these limits are lower than the general limits for other sectors.
The Minster of Health has suggested that the limits for mergers and acquisitions in the healthcare sector should be the same as for other sectors (combined revenues of €150 million or one of the organizations with revenues of more than €30 million). The government wants increase consolidation in the healthcare sector and improved cooperation between organizations. This is seen by the government as a tool to achieve these goals.
The ACM has been recently very active in the healthcare sector and has refused Bergman Clinics to acquire Mauritsklinieken and stopped the acquisition of Eurocept Homecare by Mediq. The ACM is against the suggested change as it feels that it makes it easier to develop regional companies that will limit the choice of consumers and will enable large national conglomerates with considerable negotiation power towards the insurance companies.
It is most likely that the change in rules will be active as of 2023. This should be good news to international parties interested in acquiring Dutch healthcare companies as it decreases the risk of deals having to be presented to the ACM.
Continued high investment volumes in Dutch healthcare real estate
According to Capital Value more than €500 million was invested in Dutch healthcare real estate in the six initial months of 2022. This is line with the investment volume in 2021.As in earlier years most investments were in elderly care / nursing homes. More than 60% of the investment volume came from real estate investment funds.
As explained in the previous update the Dutch elderly care sector will be transformed by recent plans announced by the Minister. One of the key changes is that there will not be any more central financing for traditional nursing homes. This will require real estate investors to develop new strategies and guidelines for the Dutch healthcare real estate market. In addition, rising costs and other uncertainties can affect the market. In a recent survey conducted by FiZi (the association of finance professionals working in the healthcare sector) 75% of respondents expect that planned real estate investments will be put “on hold” in the short term due to factors such as increasing costs (41%) or lack of internal capabilities (16%).
Capital Value is positive and expect high investment volumes to continue. It will be interesting to see what the effects will be of uncertainty about the future among healthcare operators and real estate investors who will need to develop new approaches to the market.