Competition and over-supply have transformed the GCC healthcare sector and have allowed end users and payers more opportunities to differentiate between market players for value and patient-centric care. But the recent trends in consolidation would suggest that, as larger healthcare organisations, institutional investors and private equity (PE) step up acquisitions in the sector in search of sustainable economies, patients and insurers alike could see competition begin to evaporate. As consolidation creates more concentrated markets, larger provider corporations can lead to more limited options for patients. In the United States, for example, HCA Healthcare – the largest operator of non-federal acute care in the country – had bigger operating revenues in 2023 than Netflix or Starbucks.
As we begin to see further maturity in the market, patient-centric care coupled with value, continues to be the dominant model at the heart of most growth strategies. The region’s current over-supply, however, is likely to spawn a more strategic approach to creating value in the sector. Provided organisations can find genuine synergies, we’re likely to witness further consolidation in the sector with increasing numbers of mergers and acquisitions, especially down specific verticals.
Research from institutional financial-advisory firm Allen Capital reports that healthcare spending in the GCC will top USD$135 billion by 2027, suggesting average growth of over 5% per annum. But it’s the two dominant markets in the region, Saudi Arabia and the UAE, that will account for around 80% of the region’s spending in 2027. And the prospect of sustainable growth across the Saudi Arabian and UAE healthcare sector – set to see the highest growth at 7.4% pa – will likely continue to attract investors.
What consolidation have we seen so far?
Mergers across vertical markets – in other words, consolidation between healthcare providers that offer different services along the same supply chain – have been popular in recent years as a means of achieving savings and expanding patient services. And so, too, have mergers between healthcare providers that offer patient care in different geographical markets, often known as cross-market mergers.
Back in 2013, Abu Dhabi’s largest healthcare platform, PureHealth, bought Circle Health Group, which at the time was the UK’s leading independent hospital operator with specialities including ophthalmology, cardiothoracic surgery, orthopaedics, neurosurgery and oncology. In a deal worth over USD $1 billion, this added to an already diverse portfolio that included PureLab, SEHA, Daman, Rafed and Abu Dhabi Stem Cells Centre.
More recently, the trend for consolidation has gained further momentum. In 2022, we saw the formation of the biggest post-acute care platform in the region after Amanat acquired a majority holding in Sukoon International Holding Company through a merger with Cambridge Medical & Rehabilitation Centre. In 2024, Amanat saw year-on-year revenue growth of 5%, supported by growth in its long-term care operations in KSA, despite pressure on UAE healthcare revenues.
In 2019, Abu Dhabi-based Mubadala Healthcare acquired Amana Healthcare, the GCC’s market-leading provider of specialised rehabilitation and long-term care. And in 2022 G42, the UAE-based technology company, and sovereign investor Mubadala merged their respective healthcare businesses, Mubadala Health and G42 Healthcare, in search of synergies between the former’s world-class patient care and the latter’s medical and data-centric technologies.
But consolidation doesn’t always go smoothly. The UAE’s NMC Healthcare and the UK’s NMC Healthcare PLC were for years the darlings of the stock markets, based on an allegedly successful ‘buy and build’ strategy in the GCC. Ultimately, NMC fell victim to a huge fraud and collapsed in 2020 with over USD $4 billion in previously undisclosed liabilities. After two years in administration, NMC emerged slimmer and intent on restoring shareholder value, having shed a number of acquisitions, especially in Saudi Arabia, but currently finds itself in a tough competitive market.
Investor and private equity (PE) activity has also been robust, with CVC Capital Partners acquiring a stake in FutureLife, a leading European provider of IVF services. Regional success stories continue to attract investors; in 2016, Saudi Arabia’s Al Borg Laboratories, a private medical laboratory chain with 53 laboratories across eight countries in the GCC and Africa, attracted a minority investment from Investcorp.
Too big, too fast?
A healthcare organisation with a good valuation can, of course, deliver greater shareholder value through acquisitions or mergers; after all, the target-company’s earnings before interest, taxes, depreciation and amortization (EBITDA) will create immediate value by adding to the acquiring business with a higher multiple. But whilst value creation may look easy on the growth curve, long-term success depends on a strategic plan that can create genuine synergies. In short, there’s a real danger of growing too big without going through the necessary merger synergy alignment process (MSAP).
This can be particularly pertinent for smaller healthcare organisations looking no further than survival itself. Indeed, survival panic among these operators can drive some to join something bigger and more powerful, especially when competitors are getting bigger, without first identifying synergies for long-term success. As US professor of health services policy management at Brown University notes, “if all of the other competitors in the market are getting bigger, then in order to survive – if you're a community hospital, or you're a small physician group – you need to also join something big and powerful….Something that is small can no longer compete”.
But existential threats aside, chasing short-term value creation without addressing potential synergies between two organisations isn’t necessarily the magic pill it’s sometimes made out to be when it comes to growth and sustainability. Without synergies between organisations, and the possibility for genuine disruption, creating value through cost efficiencies and better technology alone doesn’t always make for successful consolidation. This can sometimes be the case, too, when private-equity (PE) investment is concerned. PE is a form of corporate ownership that attempts to increase a company’s value in order to sell within relatively short time frames, typically within three to seven years. But short-term profit motives can often have a detrimental effect on the quality, prices, standing and overall sustainability of a target healthcare provider.
Based on historical data looking back two decades, M&A success was often more elusive than it is now; that data reveals a high rate of failure when it came to meeting synergy targets, suggesting that the so-called merger synergy alignment process (MSAP) was overlooked in as many as 60% of mergers. Much has changed over the last decade or so, with Bain & Company figures for 2022 showing that companies making acquisitions frequently earned 130% higher shareholder returns compared to companies that are infrequent or inactive players in the M&A market. As Bain & Company notes, “sitting on the M&A sideline is generally a losing strategy”.
Nevertheless, it’s worth bearing in mind that successful mergers or acquisitions depend on so much more than simply merging balance sheets. Cultures, technologies and operations need to be aligned in a way that can deliver a truly patient-centric healthcare organisation.
Long-term sustainability: a winning strategy
It’s arguably the case that acquiring a listed company with a good valuation can deliver immediate shareholder value, and the potential for synergy capture can be compelling.
But as healthcare organisations continue to search for ways to expand their service offerings whilst simultaneously reducing costs, patient-centric care and the sustainability of the business should remain uppermost in the minds of smaller healthcare organisations looking to join forces with larger entities.
Success in consolidation is by no means guaranteed, which should make businesses in the sector renew their focus on the potential gains possible from integrating healthcare companies. Long-term value creation requires a strategic plan to deliver scalability and sustainability for the business and shareholders alike.
