JOHANNESBURG Life Healthcare Group (LHCJ.J) is ready to pay up to $1 billion on a European acquisition, its chief executive told Reuters, as South Africa's second-biggest private hospital company chases growth outside its home market.
Stiff competition and flagging economic growth have pushed South African private hospital groups to broaden their horizons by expanding in Europe, the Middle East and India.
Domestic prospects are also clouded by a broad market inquiry by South Africa's Competition Commission, which is examining pricing and competition in the sector.
Life Healthcare has been slower off the mark than rivals Mediclinic International (MDCM.L) and Netcare (NTCJ.J) but it is loosening the purse strings in an effort to increase revenue from outside its core market to 20-30 percent of group revenue by 2020.
"We think the transaction size will be in the order of 8 billion rand to 14 billion rand ($600 million to $1 billion)," Chief Executive Andre Meyer said after the company's inclusion in the Johannesburg Stock Exchange's benchmark Top-40 index on Monday.
Mediclinic, which entered the United Arab Emirates with its acquisition of Al Noor Hospitals last year and holds 29.9 percent of Britain's Spire Healthcare (SPI.L), sources more than 60 percent of its profit from outside South Africa. Johannesburg-based Netcare, meanwhile, runs Britain's biggest private hospital network, BMI Healthcare.
Though Life Healthcare has invested in India and Poland, the group still earns 95 percent of its revenue and 98 percent of profit in South Africa, where economic growth is forecast to be barely positive this year.
"We think in India we have a five-year horizon to see really good earnings," Meyer said, citing a growing middle class in the world's second most populous nation as a key factor.
Meyer said his company wants to buy a more mature business that has both scale and growth potential. It is only interested in European markets where business can be conducted in English, he said, adding that this includes Germany, the Netherlands, Belgium, the United Kingdom and Ireland.
"We actually think Brexit has given us a opportunity to pick up a good asset at a more acceptable multiple," Meyer said, referring to Britain's June vote to leave the European Union, though he did not name any potential targets.
"We're not chasing anything and everything that is for sale," the CEO added, though he said that Life Healthcare would also consider assets in complementary healthcare, such as mental health, occupational therapy, renal dialysis and oncology.
In Poland, the company sees opportunities to add smaller businesses to its Scanmed business, though Meyer said he remains cautious about the market after the state increased cardiology tariffs this year.
($1 = 14.0700 rand)
(Editing by David Goodman)