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UAE and Saudi healthcare sectors are primed for some mega M&A activity. Even more IPOs... Image Credit: Pexels

Dubai: Will Aster DM Healthcare - one of the UAE’s biggest hospital operators - sell a majority stake in the enterprise?

The speculation over a possible sale has intensified in the UAE and Gulf healthcare space, even though Aster’s founder Dr. Azad Moopen issued a clear and concise statement that while it is considering a group-wide ‘re-organisation’, nothing else has been decided.

Story of Dr. Azad Moopen
Dr. Azad Moopen of Aster DM Healthcare

But that’s not been enough to cool down talk about what this could mean for the overall healthcare sector in the UAE. Because investors are clearly showing a marked interest in this space, as was evidenced during Burjeel Holdings’ IPO and follow-up listing on the ADX. The possibility that a second Abu Dhabi headquartered healthcare operator is thinking of going public has also fed into the frenzy of investor excitement.

“All relevant information related to the group re-organisation and investor refresh for the GCC business has been reported to the stock exchange in accordance with applicable law. While we don’t comment on market speculation related to names of companies, financial value, timelines etc., we would like to clarify that any information circulating around this subject does not accurately capture the terms or nature of the proposed re-organisation. The company will make disclosures to the stock exchanges when required under applicable laws.”

- Statement from Aster DM Healthcare

So, why is UAE’s hospital and clinic space of so much interest to a potentially new wave of investors? What the market is seeing now is in stark contrast to what was happening pre-Covid, when healthcare providers and bankers were saying that there was too much capacity compared to what was needed by the population base.

Fast-forward past the Covid phase to now, and everything has changed.

“Investors want to connect with the significant growth possibilities UAE, Saudi and other Gulf economies have in healthcare,” said a fund manager. “More hospital operators will likely list, and those that don’t will find institutional investors ready to pay for a stake.”

Apart from Aster, the other big candidate down the line remains NMC Healthcare, which is now owned by a consortium of creditors led by ADCB.

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Not build new, buy into existing

What’s noticeable is that investors want to get stakes in existing operators rather than build new hospitals of their own. Dr. Raza Siddiqui is the Executive Director at RAK Hospital and CEO of Arabian Healthcare Group. “Investing in existing healthcare assets comes as no surprise,” he said. “The design and development of new hospitals is a big challenge - the Ministry of Health has updated these guidelines (that new builds must follow).

Dr. Raza Siddiqui is Executive Director at RAK Hospital and CEO of Arabian Healthcare Group
“Another key reason is that cost of construction has gone up quite high,” said Dr. Siddiqui. (RAK Hospital incidentally has completed a minority stake sale to a US-based operator and also entered an alliance with India’s Apollo Group on tertiary treatment facilities.)

Thinking ‘brownfield’ rather than ‘green’

Dr. Siddiqui’s sentiment is widely shared among healthcare focussed businesses. “Unless the operator has a sizeable government investment and support, building new hospitals takes time and takes an even longer time to offer returns,” said an operator of a popular clinic network in the UAE.

“At the same time, existing hospital operators need new funds - preferably equity and not new debts - to keep expanding their interests. Healthcare operations are a costly business to be in.”

All additional benefits

Then there is another big plus - established hospitals come with all the processes in place. That matters quite a bit for investors wanting to see the return on investments happening within an optimum time. “These hospitals would already have tie-ups with insurers, and that’s a major advantage,” said Dr. Siddiqui. “Because if you open a new hospital, it takes a minimum 2 or more years to be recognised by leading insurers.

“One of the biggest healthcare insurers in the UAE currently requires any hospital to be operational and successful for a minimum two years. That’s a big requirement to fill.”

Business of healthcare

According to a top official at Alpen Capital, the UAE, and Gulf healthcare industry is ripe for deals. A key factor is the population mix in these countries. “In the UAE, for instance, the proportion of the population above 50 years will hit 21 per cent in 5 years from 15.8 per cent now,” said Krishna Dhanak, Managing Director.

That lends itself to continued investments in healthcare - and remember, the UAE will soon have mandatory health insurance for all. It will create its own demand rush for healthcare needs among a wider section of the population.

- Krishna Dhanak of Alpen Capital

“Education and healthcare have been two of the most resilient sectors in the Gulf through recent years. It’s why a name such as Abu Dhabi’s Aldar is turning out to be a significant player in healthcare assets to add to their residential and commercial investments.”

Consolidation of the UAE healthcare space and new investment activities will remain bullish in the long run. The influx of foreign investments, changing demographics, aging populations, and increasing burden of chronic lifestyle diseases will drive healthcare spending

- Vikas Katoch, founder & CEO of Sidra Healthcare

All of this suggests that talk about an Aster stake sale will keep bubbling in the background of UAE’s M&A space. And at some point in that future, that around NMC Healthcare too will be revived - and that would be the big prize.