Johannesburg - The shares of Life Healthcare (LifeHC) slid more than 6 percent yesterday after it agreed to buy the controlling stake of the UK’s Alliance Medical Group for about R10.4 billion.
This is in line with the South African private hospital owner’s strategy to grow its international footprint. Life Healthcare planned to acquire 95 percent of Alliance Medical for an initial cash consideration of £550 million (R10bn) and deferred cash consideration of up to £40m dependent on performance.
The firm said it would buy Alliance Medical - a provider of molecular and diagnostic imaging services - through a temporary loan from Barclays and South Africa’s Rand Merchant Bank.
Life Healthcare would then undertake a rights issue at a later date to refinance the loan.
Alliance Medical’s management will hold the 5 percent stake not acquired by Life Healthcare.
Neil Brown, the co-head at Electus Fund Managers, said yesterday that the company’s share price had fallen as the market was uncertain about the large deal as Alliance Medical was a private company, which had recently been restructured and turned around.
Cautionary
“The acquisition is not a surprise to the market as Life Healthcare has been trading under a cautionary and has previously said it wants to enter another territory,” he said.
Although the business was complimentary to Life Healthcare, the stake in Alliance Medical had been sold in a public bidding process, with other hospital groups vying for the stake. This meant that Life Healthcare had bought the stake for the full price - another factor affecting the share price, Brown said.
36ONE Asset Management portfolio manager, Evan Walker, said: “The shares are down purely because they have to raise some capital to fund it, and they seem to be paying quite a hefty multiple for it.”
The shares of Life Healthcare, South Africa’s third largest private health-care provider, closed 3.14 percent lower at R32.34 on the JSE yesterday, while rivals Netcare’s shares rose 4.2 percent to R34.77, with Mediclinic up 0.83 percent to R133.
Life Healthcare said Alliance Medical would give the company access to the UK, Italy and Ireland and was an established partner with national health systems, such as the NHS in the UK. Life Healthcare also operates in Poland and India.
Life Healthcare said the deal provided it with geographic diversification from 4 percent to 24 percent of revenue, which would be generated outside of South Africa.
South African firms are expanding their footprint outside of the country to combat the weak rand and earn revenue in other stronger currencies.
Life Healthcare said the deal also gave it a position in diagnostics and was a strategically important high-growth business, with further growth from underlying market demand and potential consolidation.
“Life Healthcare continues to grow its complementary service proposition in mental health and acute rehabilitation, renal dialysis, oncology and diagnostics.”
Life Healthcare is following larger South African competitors Mediclinic International and Netcare in expanding in the UK to take advantage of growing demand in private health care, according to Bloomberg. Its profits declined 11.66 percent to R1.97bn, down from R2.23bn reported in 2015. The group said on Friday that it did not expect South African market conditions to improve in the future.
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