PE investors see consolidation play in CEE hospitals sector

Mansfield Advisors’ Henry Petch and Adam Scott argue that a pan-Central European player could gain economies of scale across these four countries while spreading the political and market risks.

Market overviews

Poland has the largest private market at €1.5bn (US$1.8bn) – 8% of its total spend on hospitals in 2019. There are plenty of large players in Poland, however, the hospitals are generally subscale and without national coverage. This offers plenty of growth opportunities through M&A.

Penta became the largest in 2013 by acquiring the privatised chain EMC, then eight hospitals and 16 clinics. Medicover Poland, the second-largest, is acquiring. They acquired Neomedic in obstetrics in 2019. Bupa International’s LUX-MED dominates the outpatient market and has 200 outpatient clinics and added two more hospitals in 2019 to its previous three. American Heart of Poland has 30 specialist hospitals and has been backed by Advent International since 2011. Scanmed has 42 diagnostic clinics and was recently acquired by Abris.

Penta Investments own Dovera, one of three statutory Slovakian insurers, and two pharmacy chains: Dr Max and Mediq Apteka, the latter in Poland. Penta is believed to be close to a sales process.

Economic prosperity

Recent GDP per head growth rates are sufficient to attain the current EU average within a generation and even faster for Czechia. Indeed, the region is more prosperous than seems at first glance. The low unemployment rates in these countries are notable, with all four countries showing rates well below the EU average of 6.2%.

The Czech GDP per head in Purchasing Power Parity (PPP) is already higher than in several English regions. Less prosperous regions such as the North East have a lower GDP than the UK average, which is flattered by London. PPP is a better indicator of the volume of hospital provision according to the OECD. Czechia volume is higher than the UK and Sweden, with Poland and Hungary however still less than Spain or Italy.

Investor strategies

We expect full-service private hospitals to have low prices, to remain competitive and therefore relatively low profitability. A more obvious entry point and higher return on capital is likely to be diagnostics and other outpatient services which have relatively low capex costs, an ability to target profitable segments of the market and more appeal for out-of-pocket purchases.

New builds allow operators to obtain the best hospital sites and establish a brand based on high quality: this is important given there must be seen to be a large disparity of quality between the public healthcare provision and private to win support from insurers. Return on investment on this strategy, however, will be long term and depends on corporate health coverage extending in-depth and breadth across the population.

Privatisations offer an easier entry to the market than new builds and a good value method of expansion. 

Active hospital consolidators may benefit from any political shift to expand their portfolio and increase the economies of scale. Many facilities would only be profitable without their own central costs.

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