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Johannesburg - Life Healthcare Group [JSE:LHC] agreed to buy diagnostics specialist Alliance Medical Group for as much as £800m (R14.2bn) including debt as the South African company follows larger competitors by expanding into the UK market.
The Johannesburg-based owner of private hospitals agreed to pay £593m (R10.5bn) 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 and senior management.
The deal comes after rivals Mediclinic International and Netcare also expanded in the UK 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% from 4%, according to a presentation on the company’s website.
The shares reversed an earlier gain and dropped 3.14% to R32.34, heading for the lowest close since January 26. That values the company at 34.21bn.
“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 UK purchase enables Life Healthcare to take advantage of a 17% fall in the pound against the rand following the UK’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 R2.5bn building a stake in Max Healthcare Institute of India starting in 2012 and has invested R2.2bn in Scanmed Multimedis in Poland.
