NMC Health expands, buying Sharjah’s Al Zahra Hospital

The Sharjah hospital serves about 400,000 outpatients and 23,000 inpatients per year, and generated a net income of US$38.8m last year. The deal is expected to be completed by the end of March next year.

NMC hospital on Electra street in Abu Dhabi. Ravindranath K / The National

NMC Health is buying Sharjah’s Al Zahra Hospital, the largest healthcare acquisition in the Arabian Gulf in more than five years, amid a wave of mergers in the sector.

The Abu Dhabi-based company, one of the UAE’s largest healthcare providers, said yesterday that it had signed an agreement to acquire Al Zahra Hospital from Gulf Medical Projects Company for Dh2.1 billion.

The proposed deal, which is subject to approval by NMC shareholders at a meeting on December 29, is expected to close by the end of March, according to a statement by the company on the London Stock Exchange.

NMC will partly fund the deal via a placement of about 10 per cent of its issued share capital, equivalent to US$300 million, and would also put in place new debt facilities.

The company’s three largest shareholders, who together control more than 60 per cent of NMC, plan to contribute $170m to the placement.

“This attractive and complementary deal is expected to deliver significant benefits for patients, as well as attractive synergies and be accretive for NMC shareholders in the first full year,” said Prasanth Manghat, NMC’s deputy chief executive.

If completed, the deal would be one of the largest healthcare acquisitions in the Arabian Gulf of the past 10 years, second only to Centurion Investment’s $1.1bn acquisition of a 40 per cent stake in NMC in January 2011.

The high valuation comes as competition intensifies between key providers to increase their footprint size in the Arabian Gulf region in search of greater market share.

Rising populations, higher costs of treatment and ageing populations will lead to the GCC’s healthcare market growing at a 12.1 per cent compound annual growth rate (CAGR) from an estimated $40.3bn last yearto $71.3bn in 2020, according to Alpen Capital.

NMC’s acquisition of Al Zahra follows the merger earlier this year of its UAE-based competitor Al Noor Hospital Group with South Africa’s Mediclinic International, which created the third-largest international healthcare group outside of the US.

In August, NMC acquired a 70 per cent stake in As Salama Hospital in Khobar for $28m, entering the Saudi market for the first time.

“It is thus possible to imagine a future where the smaller healthcare providers, in the consolidating GCC healthcare space, will have very little to compete with these new mega companies,” said analysts from Al ­Masah Capital in a recent report on the GCC healthcare sector.

Al Zahra Hospital serves about 400,000 outpatients and 23,000 inpatients per year, making it one of the largest hospitals in the UAE outside of Dubai and Abu Dhabi. The hospital generated $130.4m in revenue last year, with a net income of $38.8m.

NMC said yesterday that it had identified about $6.5m of annual cost synergy benefits from the second year after the completion of the acquisition.

Analysts at Al Masah have cautioned that such benefits were contingent on post-merger integration being handled properly, with a downside risk if changes are not implemented in the right way.

“The region’s larger hospital groups must prepare for challenges, such as management issues, which could undermine profits from mergers,” said Al Masah.

“While consolidation in health care can bring high returns, the bigger hospital groups must guard against the threat of ­losing key staff and customers as well.”

Mediclinic told shareholders in September that revenue from Al Noor Hospitals would be lower than expected due to “short-term challenges” in integrating the new unit.

NMC already runs a network of seven outpatient medical centres in Sharjah, the UAE’s third largest emirate by population.

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