On June 21, 2022, as part of the “Breakfasts with leaders in the health sector” series, organized by Roland Berger, a breakfast was held with Alberto Bermejo Madera, Partner of Magnum Industrial Partners.

The presentation used by Alberto during breakfast is shown below:

Desayuno RB PE en salud_v2

A summary of the breakfast content is as follows:

Private Equity (PE) and breakfast goals

The EP is a very important actor in health

• PE companies are very active in the M&A market (the PE can buy “almost” anything)
• Very relevant operator in healthcare (almost 1/3 of the volume of M&A in healthcare is carried out by PE companies)

Despite their importance, their role, what they do and their business model are poorly understood

Breakfast goals

• Explain how these companies work
• Demolish certain myths associated with PE
• Understand the present and future impact on the health sector

PE activity evolution

The PE has experienced an explosion of its activity in the last 10 years, both in terms of purchase values, as well as sales values, as well as capital raised. The year 2021 has been especially good for the PE companies.

It can be said that PE companies can buy almost any company, whether public (listed) or private.

What do PE companies do?

These companies basically do two things:

• Convince investors (every 5-6 years you have to do fundraising) to give them their money to buy, fix and sell businesses
• Years later, after the sale of the acquired company, return their money with capital gains (the average presence of a PE company is 6 years, between 3 and 8)

Types of PE funds

The funds usually specialize in certain types of companies, depending on their development:

• Venture capital (initial states of companies)
• Growth (growing companies)
• LBOs (stable companies, with recurring income, whose acquisition is made by minimizing equity and maximizing debt)
• Other categories: companies in distress, funds specialized in certain industries (infrastructure, energy, etc.)

Consistent return generation

PE companies have consistently shown higher return generation than non-PE companies.

The business model is based on:

• Appropriate use of financial debt
• Buying good companies
• At the right price
• Incentivize good management teams to generate value

It is the last three points that are key in the PE business model.

To be successful in this model you need:

• Deep analysis of target companies
• Detailed post-acquisition action plans
• Appropriate selection and incentives for management teams

Comparison with other types of owners

Ownership of funds perfectly resists comparison in terms of advantages and disadvantages with other types of owners (family business, listed companies, industrial holding company, cooperatives and group domestic subsidiary).

Myths to dismantle about the activity of PE companies

• Funds lurk to buy: Funds logically buy what others sell
• The funds are dedicated to indebting companies to make money: leverage is not the main source of generating returns
• The funds are dedicated to cutting costs: growth and development measures are the most frequent implemented by the funds, the average growth and job creation in the companies participated by PE exceeds that of non-PE
• Funds buy to sell: TRUE, as any responsible investor should. But to achieve the profitability objectives, growth and future prospects are necessary that justify a certain valuation by the buyer. The sale of the fund must not imply an alteration for the companies or their management teams

The PE has been very active in health

The PE has been a very active investor in the health sector

• Health concentrates about 10% of PE investment
• PE represents more than 30% of investments in health

Reasons for this appetite of PE companies for the health sector

• Stability (inelastic demand)
• Growth prospects (population aging, technological advances, public deficit restrictions)
• Development plans
  • Professionalization
  • Diversification
  • Sector consolidation

In Spain, the PE companies have largely shaped the development of the private health sector

In Spain, the EP has been very active in health, both in the field of general hospitals and specialized clinics (ophthalmology, dental care, mental health, plastic surgery, etc.), as well as residences for the elderly, distribution, pharma/bio, etc.

The Magnum experience

In the case of Magnum, of 23 companies invested, 9 were from the health sector.

Magnum has contributed to:

• Consolidate and create new sectors: Geriatrics, ITA, Miranza, …
• Internationalize: Orliman, Indiba
• Professionalize: Teknon Medical Center, cmv Caridad Cartagena Hospital, Apices

The health sector will continue to be a focus of PE investment

For a more complex investment environment and the consequent flight to refuge sectors.

Due to the numerous pending opportunities in the sector:

• Hospital chains still in the hands of family groups
• Healthcare retail
  • Esthetic
  • Dental
  • Ophthalmology
  • Dermatology
  • Assisted reproduction
• Pharma/Bio