Emerging markets private equity firm The Abraaj Group created a healthcare platform, North Africa Hospital Holdings, to buy and roll up hospitals in Egypt and Tunisia in March 2015. Since then, the firm has acquired a number of hospitals in both countries, has listed 20 percent of the Egyptian side of the platform and is eyeing a listing for the Tunisian group.
Private Equity International sister title Private Healthcare Investorcaught up with Ahmed Badreldin, partner and regional head for Middle East and North Africa at Abraaj.
What was the rationale for creating North Africa Hospital Holdings?
We looked at North Africa and didn’t see a large hospital group which was benefiting from the scale synergies a large hospital operator can utilise, so we decided to create one.
You listed 20 percent of Egyptian hospital group Cleopatra earlier this month. How did you go about creating the group?
Cleopatra Hospital Company, as a group, didn’t exist eighteen months ago – it was just a set of individual assets. We identified a set of strong performing hospitals to own in the sector and approached the owners. We focused on location in a strong catchment area – the four Cleopatra acquisitions are geographically spread across the four quadrants of Cairo – and in terms of number of beds and reputation of the hospitals.
We created a management team structure by hiring people from different parts of the industry to oversee the group and leverage the synergies of a larger hospital group. That core corporate management structure is eight people strong. We left the underlying management structure of the hospitals largely intact.
Cleopatra is only the second listing on the Egyptian Exchange so far this year. What was the response when you first explored the flotation?
There was nervousness from the bankers and the regulators around doing an IPO in Egypt given the macro conditions, but my view was that healthcare is a very specific asset class and especially for a group which by that point represented a substantial portion of the Cairo hospital sector. And when we tested the market preliminarily, the feedback was supportive and suggested the public market investors would come in. In the end over 65 percent of the order book was from overseas investors.
What’s the growth plan for Cleopatra from here?
The 20 percent was to raise new money to fund future growth which will be delivered through a combination of acquisitions as well as brownfield and greenfield expansion.
You have three hospitals in the Tunisian group. What’s the next stage there?
We are looking to acquire a fourth hospital in Tunisia and in a year from now could consider an IPO.
Outside of Egypt and Tunisia you are acquiring healthcare centres in Morocco. What’s the strategy for that country?
In Morocco we are pursuing a different strategy of acquiring oncology and diagnostic centers. In Tunisia and Egypt there are many private hospitals of scale but in Morocco most of the private hospitals have fewer than 50 beds and this lack of scale makes a similar strategy to what we have pursued in Egypt and Tunisia difficult.
Healthcare deals in North Africa have been on an upward curve for a few years but in the Middle East numbers are flat. What’s driving that?
In the Gulf Cooperation Countries valuations have been driven high by strategic buyers. It’s become difficult to make private equity-style returns, because as a private equity buyer you are always coming up against strategics that are highly acquisitive. In time these strategic buyers will want to migrate to North Africa and, if so, the market there may change.
You are the first mover in creating a hospital group of this size in the region. Are you concerned others may now try to take a similar approach?
In Cairo it will be difficult for new buyers to do what we’ve done because we focus on the middle class. So even if you own hospitals, and the ones potentially available for sale are in the higher-end segment, you will be under cost pressures from the insurers. Because of this I’m not sure the opportunity is there to consolidate larger hospitals.
And in Tunisia many of the private equity investors in the country don’t invest for control transactions but have a minority mindset with a promoter alongside them. We are focused on driving the growth agenda in the businesses we invest in and backing a management team to deliver that growth.