AAR chairman Frank Njenga (left ) with Investment Fund For Health Africa MD Max Coppoolse yesterday. AAR is considering forming a subsidiary to take up its insurance and fund management units. File
Healthcare provider AAR Holdings is to restructure its operations following the entry of an investor in the business as the firm eyes a listing at the Nairobi Stock Exchange in five years.
The private company announced Wednesday that Netherlands-based private equity fund Investment Fund for Health in Africa (IFHA) had bought a 20 per cent stake in the company for Sh750 million. Group chief executive Jagi Gakunju said the company planned to cut down on its operations and focus on its core business of providing medical services.
The company is considering forming a subsidiary to take up its individual and group insurance business as well as the fund management units, or selling them.
AAR also provides emergency rescue services. “It would be necessary to form another company under which the businesses will be run, or sell them to established insurance companies — this would add a lot of value to them,” said Mr Gakunju.
AAR has operations in Kenya, Uganda, Tanzania, and Rwanda.
“We want to have grown value of the business by at least five times at the time of listing,” he added, while also revealing that the new investor was keen on exiting through an initial public offer at the stock exchange. He said the company was currently valued at about Sh3.75 billion. IFHA plans to take over up to two thirds of the firm in the next two years.
“As IFHA, we are certain to increase our investment in AAR,” said Max Coppoolse who is heading the consortium of investors in the fund who include Goldman Sachs, the African Development Bank, and ABP — a Dutch pension fund.
With the signing of the deal, the private equity fund now controls the boardroom with four out of seven seats, suggesting that they will dictate the company’s strategic direction.
Rescue services
The private equity fund invests mainly in healthcare providers. AAR expects to roll out more healthcare centres, while ramping up the rescue services division.
Foreign private funds have in recent years made a beeline for acquisitions in Kenya’s healthcare industry as they seek to tap into the vast opportunities for profits arising from increased demand for private healthcare by individuals who have higher income levels.
Official statistics indicate that Kenyans finance up to 52 per cent of their healthcare costs from their pockets, which makes private healthcare big business.
This is against the average annual government health spend of five per cent of the national budget, way below the standard World Health Organisation recommendation of a 15 per cent minimum threshold.
The value of the health services industry in Kenya has risen steadily from Sh33 billion in 2004 to Sh51 billion in 2008, according to the government’s Economic Survey figures.
Edward Rukwaro, general manager of healthcare provision arm AAR Kenya, estimates that the annual premium collection for healthcare cover is more than Sh5 billion in a market where insurers like Jubilee, ICEA, and UAP are among the top players.
Industry players have estimated that medical inflation over the past five years has averaged 20 per cent, with providers citing rising costs of human resource and medicines.
Mr Gakunju said the company was venturing into use of tele-medicine model to reach patients in remote areas.
Private funds
“The telemedicine model we are now adopting will enable us to provide quality healthcare to patients even in small, far off hospitals,” he said, explaining that patients could be examined remotely and their samples taken for testing at a central location.
Health sector players say private funds’ interest in private hospitals has more than tripled in the past two years and is expected to hit about Sh1 billion by end of the year.
In 2008, TBL Mirror Fund BV bought a significant stake in Meridian Medical Clinics for an undisclosed sum.
That move was followed early this year by Aureos Capital’s buy into the Nairobi Women’s Hospital for Sh200 million. Acumen Fund, another private equity firm, has also bought a stake in a start-up eye hospital and a pharmaceutical franchise, while Karen Hospital is in talks with an unnamed PE fund for money to expand its presence in East Africa.
The Nairobi Hospital has also confirmed that it is looking for a possible PE fund to boost its expansion plan.
