More M&As seen in healthcare industry

More recently, Sunway Bhd had in June this year divested a 16% stake (on a fully-diluted basis) in its healthcare unit to Singapore’s sovereign wealth fund, GIC Private Ltd, for RM750mil.

PETALING JAYA: The healthcare sector is set to see a rise in corporate activities such as mergers and acquisitions (M&As) as economic recovery picks up.

Notably, the Covid-19 pandemic had slowed down such activity, which had actually been building up right before the pandemic hit.

Hong Leong Investment Bank (HLIB) Research said in a report that as the country emerges from the pandemic, certain sectors like the healthcare industry were bound to experience a stronger recovery compared to other economic sectors.

“Hence we think that this should continue to drive interest for more M&A activities within the sector, going forward,” it said.

HLIB added that potential M&A transactions within the healthcare sector would be a possible re-rating catalyst for healthcare-related counters under its coverage.

“With that, we upgrade our rating on the healthcare sector to overweight,” it said.

In its report, the research house noted that Malaysia’s healthcare industry had seen some sizable M&A deals being transacted in the last three years, predominantly involving hospital operators.

It cited a few of such mega deals, chief among which was the sale of hospital operator Columbia Asia.

“In 2019, the Hong Leong Group teamed up with US private equity firm, TPG Capital, to acquire Columbia Asia’s South-East Asian operations (inclusive of 17 hospitals and one clinic) for a total consideration of RM5bil.”

This, it said, marked Hong Leong Group’s first foray into the healthcare space, adding that the deal was believed to be valued at an enterprise value/earnings before interest, tax, depreciation and amortisation (EV/Ebitda) multiple of 20-24 times.

More recently, Sunway Bhd had in June this year divested a 16% stake (on a fully-diluted basis) in its healthcare unit to Singapore’s sovereign wealth fund, GIC Private Ltd, for RM750mil.

The deal implies an EV/Ebitda multiple of 31 times, a significant premium of 64% and 125% to IHH Healthcare Bhd and KPJ Healthcare Bhd’s EV/Ebitda valuation 19.1 times and 13.9 times, respectively, at the time of announcement, HLIB noted.

“We believe the aggressive multiple ascribed had taken into account the future growth potential of Sunway’s healthcare unit, as the group is targeting to increase its bed count to around 2,000 from its existing 862 beds,” it said.

HLIB also raised the ongoing speculation of UEM Group potentially paring down its stake in UEM Edgenta, which has a healthcare unit.

“Given the continued interest in M&A activities in the healthcare space, we do not rule out the possibility of UEM Group potentially seizing the opportunity to pare down some of its stake in UEM Edgenta.

“This is considering that the latter’s healthcare support services segment accounts for 64% and 71% of its revenue and profit, respectively, for the first half of financial year 2021,” it said.

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