Since the beginning of 2015, the GCC region has witnessed a period of clear growth in the healthcare sector, a testament to increasing consumer demand.
This period of evolution in the sector coupled with a push by healthcare providers to broaden services, diversify and seek higher margin business has resulted in a surge in mergers and acquisitions (M&A) activity.
As these providers enter a phase of consolidation, this M&A trend will continue. The surge in M&As has been especially notable in the UAE and Saudi Arabia, with the former alone seeing more than a dozen major healthcare acquisitions. For example, NMC Health acquired five healthcare providers just last year, with a clear expansion through acquisition and diversification strategy.
The largest of these were Fakih IVF, a provider of fertility services and ProVita Medical Centre, which is a provider of long-term care. These specialist medical centres will enable NMC to enhance its portfolio, provide a wider range of services, as well as increase market share and margins.
Cross-border transactions include IMS’s acquisition of Dimensions and South Africa-based Mediclinic International’s acquisition of Al Noor Hospitals Group for US$2.2 billion in a reverse takeover deal. The latter is the largest deal in the GCC healthcare sector, with the merged entity creating the third-largest acute hospital group in the world, outside the US. Creating further impetus for this M&A activity is the growth predicted for the sector.
Projections for the markets in the UAE and Saudi Arabia indicate an annual average growth of 12.7 per cent and 11 per cent, respectively, over the next four years. The GCC healthcare sector as a whole is projected to grow from an estimated $40.3bn in 2015 to $71.3bn in 2020.
This trend can be attributed to three key factors.
Firstly, the region has witnessed substantial demographic shifts in recent years with the GCC population expected to reach 59.2 million people by 2020, up from 52.6 million last year. The second driver can be attributed to lifestyle. The GCC, unfortunately, is one of the global leaders in lifestyle related, non-communicable diseases: more than half of the region’s population can be considered overweight. As The National has reported, diabetes, a disease often associated with obesity, affects 19 per cent of the UAE population, twice the world average.
The final key factor has been the introduction of compulsory health insurance in the region. This provides residents with easier access to healthcare services and this therefore will increase demand. These market drivers have created a chance for growth that the healthcare sector is eager to pursue.
Addressing increasing demand has often fallen to the public sector, however, in recent years, public-private partnerships are becoming an increasingly common model to share this burden.
There are even talks of privatisation of healthcare services, which has been confirmed in the case of Saudi Arabia, with the announced privatisation of about 295 hospitals in the kingdom.
In the UAE, the Government has welcomed international and foreign providers. These Government policies, supported by increased insurance coverage and low-interest loans for building facilities, are attracting private-sector interest and investment. There has also been an increase in the number of private equity players. Companies such as Middle East Venture Partners and Alkhabeer Healthcare have been investing in the sector. This private equity activity has been another driver behind the increase in M&A transactions.
From the perspective of the healthcare providers, pure expansion has not been the only motivator behind the M&A activity. Diversification, too, has been a key driver. We have seen a trend of hospitals buying up specialist clinics, which can help a hospital enhance its offering and services.
Larger healthcare companies resulting from a merger will also have more influence with insurers, which in turn will ultimately benefit the consumer, by securing access to specialist services.
Husam Kutaifan is the head of investment banking at Emirates Investment Bank
business@thenational.ae
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