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Oct06

Update 6 October 2021

Update 6 October 2021

The days are getting shorter and shorter, and I have seen the first Christmas decorations (actually for Sinterklaas, celebrated by the Dutch on 5 December). It has been quiet in the Dutch healthcare sector lately, but there are always interesting studies to present to you.

In this update we cover:

  • Dutch Healthtech startups have problems with scaling up. Is this an opportunity for international early investors?
  • Commercial Dutch youth care providers  outperform traditional organizations. Is this an attractive sector for international investors?
  • In our snapshot we give an overview of Arts en Zorg, a chain providing primary healthcare in twenty-one locations in the Netherlands

Dutch healthtech start-ups are not successful in scaling up

Techleap is a Dutch organization financed by the government to improve the Dutch “technology ecosystem” . In a recent report they provide an overview of the healthtech space. The sector is very popular with investors with investments in the last twelve months totaling €500 million. However, the report highlights that only 29% of the new companies in the sector are successful in scaling up their operations. In comparison, in Israel 71% of new healthtech companies are able to scale up.

According to Techleap the key reasons for the low success rate are:

  • Typical investors in the sector do not have enough knowledge, experience, and access to funds to support the new companies in their further development
  • The new healthtech companies find the process leading to certification of their new products to be complex and time consuming
  • The structure of the Dutch healthcare sector entails that each hospital makes its own purchasing decisions. This makes the sales process complex and time consuming

As a result, many new Dutch healthtech companies choose to focus on developing international markets. This approach has its own pitfalls and means that the Dutch healthcare sector does not reap the benefits of the innovative technologies. Is this an opportunity for international early-stage investors?

Commercial youth care providers outperform traditional providers

Follow the Money (FTM) is a critical journalist collective that often writes well-researched and provocative articles about the Dutch healthcare sector. I do not always agree with their conclusions, but their articles  are always worth reading. In an ongoing series of articles FTM are taking a deep dive into the Dutch youth care sector.

In one of the recent articles in this series they analyze the financial data of youth care providers in the period 2016-2019. The analysis gives a fascinating picture into the financing of the sector and the financial performance of the distinct parts of the sector. Key conclusions from the analysis are:

  • There are probably around 6.000 organizations providing some type of youth care in the Netherlands. These range from single persons to very large organizations. The core service provision is carried out by approximately 1.500 organizations that are large enough to have to publish accounts and that get more than 30% of their revenues from youth care (paid for by the municipalities)
  • Municipalities tend to spend most of their youth care budgets with a limited number of large providers (typically non-profit foundations)
  • Commercial organizations are becoming increasingly important. In the period between 2016 and 2019 the youth care revenues of commercial organizations grew by 78%. In the same period the traditional organizations had a limited growth (17%) but from a much larger base
  • Commercial providers of youth care are, generally speaking, more profitable than traditional organizations. Average profitability for the commercial organizations in 2019 was 4% (ROS) while the traditional organizations had an ROS of 0.4% in the same period. Sixteen of the large traditional providers of youth care have been structurally loss-making the period 2016-2019

What are the key reasons that the commercial organizations have been able to take market share and be more profitable than the traditional non-profit organizations?

  • Commercial youth-care providers have tended to focus on the extramural market, and this is where most of the growth in the market has been
  • Commercial chains, such as Mentaal Beter, have been focusing on growing, partly through acquisitions but also by opening new locations and expanding service provision at existing locations
  • Commercial providers tend to be young, do not have legacy costs such as redundant real estate, and typically have flatter organizations and lower overhead than the traditional organizations

The analysis by FTM certainly makes it easier to understand by international PE-investors such as Apax have been happy to invest in Dutch youth care providers. Will more international investments in the sector follow?

Snapshot of a private Dutch healthcare operator : Arts en Zorg

We have recently written about the problems that Quin has had in running GP-practices. Arts en Zorg is a Dutch organization  that proves that it is possible to successfully provide primary care in the Dutch market. Arts en Zorg was started in 2005 by the people behind Independer (a comparison site for healthcare and financial services). In 2008 a majority share was sold to NPM Capital, and in 2012 the company merged with Zorgpunt (another chain of primary care practices). This resulted in Menzis ( one of the largest Dutch healthcare insurance companies) and Reggeborgh (investment company) also becoming shareholders. In 2019 NPM Capital sold its shares to the other shareholders.

The company currently has revenues of more than €35 million and serves 200.000 patients with nine hundred employees. The company is divided into three divisions. The largest provides primary care in twenty-one own locations  and has eight affiliated locations where it provides managerial support. Zorg en Arts also provides institutional care to prisons, military locations, and refugee centers. Finally, Arts en Zorg also has a healthtech division (Gezond.nl)  that develops digital solutions for healthcare related issues.