The Brazilian Health Care Valuation - B3
Author: Paulo Rodrigues
Why the Brazilian Health industry has called the investor´s attention
The health sector in Brazil, includes a volume of 594,972 companies according to the data from the federal revenue of May 2020 published by SEBRAE (1). Excluding micro and small companies, there is a total of 98,075 companies, comprised mostly of hospitals and clinics, diagnostic services such as clinical and image analysis laboratories, pharmacies, medicine wholesalers and manufacturers of medicines, surgical material and equipment.
To give a sense of the size of the health market in Brazil, the consumption of health goods and services in Brazil reached R$ 608.3 billion, according to IBGE (2) 2017 census. This is the equivalent of 9.2% of GDP. Over half of that—(over 58.3%)—was accounted for by households and non-profit institutions serving families, while government expenditures accounted for 41.7%.
What is the hospital coverage of the Brazilian population
As of January 2021, 24.5% of Brazilians were covered by private health plans according to ANS (3). That means 3/4 of the population depends on SUS (4).
Just as a comparison, in the United States, 68.5% of the population is covered by private health service. (US Census Bureau 2019).
By the end of 2020, SUS accounted for 356,465 beds and the private network another 176,180 beds, resulting in an average of 2.5 beds per thousand citizens.
In December 2020, there were 5,205 general and specialized hospitals in Brazil, of which 2,499 were private (5). In order to reach the minimum number of beds recommended by the WHO (World Health Org) of 3 beds/1000 citizens, Brazil would need an additional 106,355 beds. This means Brazil needs to open another 1,039 hospitals.
What is the current state of the business environment in the health sector in Brazil
The health sector in Brazil has always been very fragmented. The movement and investment of companies in the sector in the country has been gaining momentum since 2015, when the participation of foreign capital in companies in the area became permitted. The first companies in the health sector that launched on the stock exchange were the diagnostic service, retail / drugstore chain companies, among others.
As an industry, the sector has reached the stage of maturity with an increasing level of competition that enhances current trend for consolidation. Another structural change is in the management of companies, which migrates from the status of family-owned and dispersed companies, to large corporations with professional management. The stock market benefits from the movement, as a preferred way to the source of the funds needed for organic growth and new acquisitions.
News
The movement of the M&A and IPO’s in the health industry has been widely reported in the Brazilian media. According to a publication by BizNews / br, there were more than 60 mergers and acquisitions in Brazil in 2020, handling US$ 1.088 billion. In 2019 there were 73 totalling US$ 1.641 billion.
Among the business highlights reported in 2020 was the acquisition of Lifecenter Hospital in Belo Horizonte (MG) by Notredame Intermédica for R$ 240 million. The Dasa Group acquired the Leforte hospital chain in São Paulo for 1.77 billion reais. In terms of health plans, Qualicorp took the portfolio of Muito Mais Saúde and finalized the acquisition of Plural and Oxcorp. In addition, the Fleury Laboratory bought the Pacaembu Infusion Center and the Moacir Cunha Eye Clinic.
In 2021 the sector's mergers and acquisitions activities started accelerating (https://setorsaude.com.br/tag/fusao/). Among the highlights was the announcement of the merger between Hapvida and the NotreDame Intermédica Group (GNDI). The integration will create a company with a market value of 110.5 billion reais. Another major movement in the market was the IPO of Rede D’Or, bringing in 11.4 billion reais in cash. A good part of this amount should be allocated to new purchases.
What is the performance and relevance of the health industry on the Brazilian stock exchange B3
On July 2020 the Brazilian stock exchange traded shares of 19 companies from the health sector, which represents less than 4% of the total number of companies traded on B3. Given the relevance and scope of the sector, combined with the consolidation process, we expect a large volume of new business in the area of Mergers and Acquisitions and an increasing number of IPO´s for this and the coming years.
This article presents an overview of the performance of companies in the health sector based on the analysis of the financial information made available to investors and the shares traded on the Brazilian stock exchange B3 in the last four years. Important indicators used by M&A appraisers for the valuation of companies in this industry are statistically calculated and made available in this study.