Life Healthcare Enters U.K. With $995 Million Alliance Deal

  • South African hospital owner agrees to biggest-ever purchase
  • Joins local rivals Mediclinic, Netcare in tapping U.K. demand

Life Healthcare Group Holdings Ltd. agreed to buy diagnostics specialist Alliance Medical Group Ltd. for as much as 800 million pounds ($995 million) including debt as the South African company follows larger competitors by expanding into the U.K. market.

The Johannesburg-based owner of private hospitals agreed to pay 593 million pounds in cash and a performance-based additional payment, it said in a statement on Wednesday. The sellers are funds managed by M&G Investments, Talbot Hughes Mckillop LLP and senior management.

The deal comes after rivals Mediclinic International Plc and Netcare Ltd. also expanded in the U.K. to take advantage of growing demand for private health care in a country dominated by the state-owned National Health Service. Life Healthcare has also bought companies in India and Poland in the past four years, and the latest transaction will increase the portion of revenue generated outside South Africa to 24 percent from 4 percent, according to a presentation on the company’s website.

The shares reversed an earlier gain and dropped 1.2 percent to 32.99 rand as of 2:47 p.m. in Johannesburg, heading for the lowest close since Jan. 26. That values the company at 34.9 billion rand ($2.4 billion).
 
“What Life has spent in Poland and India has been mostly dilutive on earnings and I think there are concerns that this new deal comes before Poland has been integrated properly,” Sean Ungerer, a Johannesburg-based analyst at Arqaam Capital, said by phone. “There are probably also some questions about this deal’s funding structure with a rights issue likely to cover a part of the deal.”

The U.K. purchase enables Life Healthcare to take advantage of a 17 percent fall in the pound against the rand following the U.K.’s vote to leave the European Union.

Alliance Medical has a “long-term relationship with the National Health Service” and also owns the most out-of-hospital clinics in Italy, Life Healthcare said in the statement. The company has previously expanded into mental health, physical rehabilitation, dialysis and oncology and “sees the entry into diagnostics as a natural part of this growth and diversification strategy,” it said.

Life Healthcare has spent 2.5 billion rand building a stake in Max Healthcare Institute Ltd. of India starting in 2012 and has invested 2.2 billion rand in Scanmed Multimedis in Poland.

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