AUGUST 5, 2022: The German healthcare M&A market continues to be buoyant following the boom in 2021. But as autumn draws in, the pace of deals may abate and sellers may struggle to achieve previous heady price premiums, advisors warn.
So far, however, deal volume and value momentum have showed no signs of slowing according to Stefan Sachsenhauser, Managing Director and head of DACH (Germany, Austria & Switzerland) Healthcare at Clearwater International. The corporate finance firm estimates that there were 42 DACH deals in the first quarter of 2022 after a European record in 2021.
“We expect deal activity to remain high in 2022, as companies look to optimise their portfolios for growth,” agrees Tobias Klimpe, Global Health Industries Deals Leader at PwC Germany, the corporate advisor and accountant. “Innovative biotech and medical device companies will continue to be attractive M&A targets.”
The for-profit health care market size in Germany in 2020 was €95bn and is estimated to have grown to €98.3 bn in 2021.
According to Handelsblatt, the German business publication, several deals are doing the rounds. Investment bank William Blair, acting on behalf of private equity firm Nord Holding, is seeking bidders for Zentrum Gesundheit, a network of ophthalmologists and eye surgeries. An auction for Rad-X, the imaging group, is forecast to begin in September. As predicted in HBI last year, private equity firm Montagu intends selling Artemis Augenkliniken, its German ophthalmology asset after the summer. Goldman Sachs is reportedly advising. Trilantic Europe, a private equity firm, intends selling the Oberberg Group which operates psychotherapy and psychiatry and clinics in Germany, reports Handelsblatt. JP Morgan is the reported advisor.
HBI contacted the companies and advisors involved in the unconfirmed coming deals. None were prepared to comment.
Price multiples on recent negotiated deals, notably eye clinic chains Veonet and Sanoptis and the imaging group Meine Radiologie have been reportedly estimated at 15 times EBITDA.
Clearwater estimates that 15 times EBITDA is at the higher end of current valuations for companies. The recent multiple range, depending on size and strength of the takeover target, has been around 12 to 15 times, though there is wide variation depending on subsector.
Our analysis: The real question is what outlook for German healthcare mergers and acquisitions as the economy slips into a predicted inflationary recession?
According to PwC, there are “large similarities between the global trends and themes driving M&A and the German M&A landscape. Last year was “very strong” for M&A activities in the health care industry with an increase of 24% over 2020 levels. “However, a distinct difference between the global and German M&A trend is a lack of megadeals in 2021”.
On the optimistic front, the German health care M&A market “is crowded with all kinds of investors competing for assets” says PwC. Cross-border deals continue to be a major factor with 55% of buyers being located outside of Germany and roughly 30% outside of the EU.
The worry, however is that surging inflation in a weaker economy raises costs for healthcare companies. Moreover, rising interest rates and corporate bond yields may well dent profits of leveraged companies with high levels of debt. Such concerns may well discourage potential buyers or encourage them to beat down acquisition prices.
Even though Europe is buffeted by macroeconomic headwinds, its for-profit healthcare sector offers several fundamental attractions, a Clearwater analysis finds. The ageing population raises demand for products and services. Private equity firms with a lot of surplus cash are favouring healthcare investments in the uncertain economic climate because they are underpinned by secure, publicly funded revenues. Large national waiting lists are also driving the need for private consultations, surgery and therapeutic innovations.
© Copyright Neil Behrmann
First published in Healthcare Business International