S.Africa’s Life Healthcare to buy controlling stake in Britain’s Alliance Medical

Industry: Healthcare 2016-11-18

* Life Healthcare seeking growth in developed markets

* Alliance Medical has operations in Italy, Ireland

* Plans for rights issue dent share price

South Africa’s No. 3 private hospital firm Life Healthcare will acquire 95 percent of Britain’s Alliance Medical, it said on Wednesday, but its shares fell sharply over its plans for a rights issue.

Seeking growth outside its home market, Life Healthcare will spend up to 10.4 billion rand ($727 million) in cash for the controlling stake in unlisted Alliance Medical, which also operates in Italy and Ireland.

South African private healthcare providers, which also include Mediclinic International and Netcare, are in a race to expand by making acquisitions in more developed markets as an anti-trust inquiry has constrained growth at home.

“In addition to investing in a growing developed market, the acquisition provides Life Healthcare an opportunity to diversify into attractive new geographies with a strong basket of currencies,” the firm said in a statement.

Life Healthcare, which in September told Reuters it planned to pay up to $1 billion on a European acquisition.

The firm said it will buy Alliance Medical — a provider of molecular and diagnostic imaging services — through a temporary loan from Barclays Plc and South Africa’s Rand Merchant Bank.

Life Healthcare would then undertake a rights issue at a later date to refinance the loan, it said.

Its stock fell as much as 6.7 percent, before recovering to trade 2.1 percent weaker at 32.69 rand by 1304 GMT. The bourse’s All-share index was up 0.9 percent.

“The shares are down purely because they have to raise some capital to fund it, and they seem to be paying quite a hefty multiple for it,” said 36ONE Asset Management portfolio manager Evan Walker.

The Johannesburg-based company said it will pay an initial cash amount of 553 million pounds ($687 million) and a deferred amount of up to 40 million pounds depending on Alliance’s financial performance in the year to end-March.

Alliance Medical’s management will hold the 5 percent stake not acquired by Life Healthcare.

The entry into diagnostics is a natural part of its growth and diversification strategy, said Life Healthcare, which has over the past few years expanded into mental health, physical rehabilitation, renal dialysis, and oncology.