A couple of weeks ago, I participated in a survey conducted by a consultant on mergers and acquisitions (M&A) in the local healthcare scene. The scope reveals at least on my part the complexity of the process and the need to seek advice on such matters even for seasoned health entrepreneurs.
According to a 2011 KPMG report, Africa’s M&A value for disclosed deals then was at about $35 billion. No doubt this has risen by now.
Some of the questions asked evoked memories of happenings at local tech company Angani after the entry of equity partners.
The case shows dilemmas business founders may face especially regarding the expansion, identity and ownership structures with the entry of new partners.
In group holdings, it is not always easy arriving at a deal that satisfies all the founders’ desires as well as retain their vision.
Last week saw announcements in the press by two foreign investors in our healthcare scene with investments in local hospital chain Avenue Healthcare by Abraaj as well as Metropolitan Hospital’s acquisition of Ladnan Hospital. Pharmacy retail chain Goodlife also received investment by IFC for their expansion.
Most medical outfits begin with one founder and gradually grow with the entry of new ones along the road. The average time for such acquisitions to be “ripe” seems to be between five and 10 years or longer for big businesses. In that time anyone who has ever run a hospital can tell you how complex a journey it is.
A scenario given at my business school on mergers involves three doctors investing in hospital. Doctor A brings land and the buildings, doctor B brings equipment and doctor C offers the human resource as equity. Simple as it seems at the start, as they grew and the value rose, the partners found themselves in ownership wrangles when an exit opportunity arose.
The take from the study is that doctors need expert advice as their businesses grow to have a clear path on the long-term vision. What roles do the new investors take, does the entity’s goal plan change and what will be the new shareholding structure.
For most medics, while a desire for healthy financial returns are there, a purpose to offer a service that positively impacts the community is innate. Does this still survive with new investors coming on board?
Supermarket chains Nakumatt and Uchumi’s woes should offer lessons on balancing equity fund’s desire for more profit and the realism of providing for future uncertainties. What happens to five-year targets if our public healthcare finally gets its act together?
A lot of things could happen to change our healthcare business environment, but in all whichever fund attracts premium top talent will thrive.
Kenyan medics are headed for an exciting time in the local mergers and acquisitions area.
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