Latest article for Health Investor magazine on developments in the German healthcare market.
Consolidation is the name of the game at every level in the German medical sector. At the moment, all industry watchers have an eye on Bad Homburg-based healthcare group Fresenius. At the end of April it made clear its intentions to become the country’s largest private hospital operator through a €3.1bn (£2.5bn) takeover offer for arch rival Rhön-Klinikum.
“The proposed Fresenius-Rhön transaction is just the start of more consolidation in Germany and Europe,” says Martin Henrichs, managing director of the healthcare team at Credit Suisse. “It is a huge step for the hospital industry.”
It will be a game changer in a country where around 30% of German hospitals are privately owned. Local councils look after 32% and 38% are held by religious institutions. Should the deal get the nod from the country’s competition commission – and no one is seriously suggesting that it won’t – the proposed €3.1bn offer for Rhön’s 53 hospitals and 39 healthcare centres would double the revenues of Fresenius’s existing hospital subsidiary, Fresenius Helios, whose 63 nationwide hospitals reported revenues of €2.7bn last year.
The deal financing is complicated. Fresenius decided to bid €22.50 a share for Rhön. That is a hefty 52% premium on where the shares were trading before the takeover was announced, but premium pricing was needed to reach the 90% acceptance for the bid. A mix of loans, bonds and equity are envisaged to fund the deal, with commitments already in place for €5.3bn.
The levels of commitments should not be a surprise. Fresenius has long been one of the darlings of the debt market. Although technically a high yield company – it is rated Ba1 by Moody’s and BB+ by Standard & Poor’s – it tends to borrow at investment grade levels.
Fresenius might be getting the media attention, but what the company is doing is being reflected throughout the German healthcare market. Acquisitions of European private equity owned medical facilities have rocketed since 2009. Then they stood at €1.5bn. By 2011 they stood at €6.3bn according to Credit Suisse. No slow down is expected any time soon. More than 20 such assets are expected to come to market this year.
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