Bids for Al Noor Hospitals rekindle belief in M&A market

Just when you thought there was no fun left in the mergers and acquisitions market – indeed questioning whether there was an M&A market at all – up pops Al Noor Hospitals with an intriguing little scenario to keep the advisers busy for the next few weeks.

Maybe not so little. Al Noor, UAE-based but listed on the London Stock Exchange (LSE), is valued at about $1.8 billion. The two potential buyers of Al Noor’s business that have emerged over the past week – NMC Health of the UAE and South Africa’s Mediclinic – are also valued in the multiple billions, so whichever deal is successful would create a huge medical group probably ranked in the FTSE 100 list of London’s biggest companies.

In addition, the successful bidder would be in pole position in the Middle East medical business, running the region’s biggest healthcare operation in this fast-growing and high-profile industry. The sheer scale of a merged business, regardless of the identity of the eventual partner, would give it critical mass in dealing with the insurers who drive the healthcare business. It is an enticing prospect.

Mediclinic kicked the bidding off with the announcement that it had approached Al Noor with a possible deal. NMC countered last week with its own approach, setting the takeover clock running according to the rules of the LSE. NMC has until November 6 to put up a firm deal, or shut up and go away.

NMC has said its offer would be in a cash-and-shares format. On the Mediclinic side, both it and Al Noor have said that a deal would take the form of a reverse takeover, which implies an all-share transaction. That would enable the South Africans to assume Al Noor’s London listing.

Mediclinic is listed in Johannesburg but is a familiar name in the UAE, and especially Dubai, where it has clinics in some of the emirate’s prime locations. It also has operations in Switzerland and its native South Africa.

NMC, on the other hand, is unmistakably a UAE company, the 40-year-old creation of the Indian healthcare entrepreneur BR Shetty, with backing from big Abu Dhabi investors. It has been said that NMC is as close to a "national health service" as the UAE has.

Like Al Noor, NMC chose a listing in London a few years back on sound advice from investment bankers who persuaded the owners they would get a better valuation there. The advisers were right and both companies have had very good runs on the London market.

The practicalities suggest that NMC would make the better partner for Al Noor. Perhaps the split of business between Dubai and Abu Dhabi would argue for a tie-up with Mediclinic, but the logistics of a Johannesburg bid for a London-listed company with its main operations in the UAE are complex indeed.

A straightforward merger between the two UAE companies via their London quoted holding companies would be much easier and faster, and would probably get the informal blessing of the UAE authorities.

NMC’s advisers are doing the financial sums. Al Noor would be quite a chunky acquisition for NMC, which itself is valued at about $2.3bn. It has about $310m of unused borrowing facility still at hand, and could raise a further $900m before it affected its leverage ratios. The balance of the purchase price – possibly as much as $800m assuming a 20 per cent premium for goodwill to Al Noor shareholders – could safely be made up of NMC’s well-performing shares.

Will Al Noor shareholders go for it? Although it is a publicly quoted company, majority control still rests with the big UAE shareholders who funded the business in its infancy and who retained big stakes when it floated in London.

They have a legitimate desire to maximise their return on the investment, of course. But they must also be motivated by the ambition to see the UAE create a national champion in the vital healthcare sector, in a once-in-a-lifetime opportunity to transform the medical industry in the Middle East.

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