Consolidation in the healthcare sector is gaining momentum

The threat of insol­vency and the upco­ming liqui­dity requi­re­ments to reduce excess bed capa­city, to specia­lize the services of the previous “full-service provi­ders” and to network with other health­care provi­ders require exter­nal finan­cial resour­ces. Howe­ver, the dual system of hospi­tal finan­cing does not provide for any exter­nal funding: The opera­ting costs (person­nel, medi­ca­tion, energy, cate­ring, purcha­sed services) are to be covered 100% by the health insu­rance funds and insu­r­ers, while the invest­ment measu­res (depre­cia­tion, rents, leasing) are to be covered 100% by subsi­dies from the fede­ral states. The trans­for­ma­tion fund envi­sa­ged to finance the hospi­tal reform will only lead to a delayed inflow of funds stret­ched out over ten years, which cannot solve the acute liqui­dity problem. 

The urgent need for funds is very diffe­rent in the three spon­sor groups “public”, “private” and “church”: public hospi­tals are supported by their muni­ci­pal owner, if the budget situa­tion permits. In private hospi­tal groups, the loss-making hospi­tals in the cash pool are provi­ded with the neces­sary liqui­dity and restruc­tu­red within the group. Isola­ted church acute hospi­tals below a criti­cal size are curr­ently most at risk of insol­vency. With the dete­rio­ra­tion in the muni­ci­pal budget situa­tion (trade tax reve­nue, social welfare payments), it is to be expec­ted that public hospi­tals will become incre­asingly insol­vent in future, as their owners are unable to provide subsi­dies or grant loans. We assume that muni­ci­pal and district hospi­tals will have incre­asing problems with their solvency. 

In this situa­tion, borro­wing from banks and savings banks is diffi­cult, if not impos­si­ble. Although coope­ra­tion agree­ments with other health­care provi­ders promote the neces­sary networ­king, they do not provide the hospi­tal in ques­tion with any finan­cial resour­ces. The commis­sio­ning of inte­rim or restruc­tu­ring manage­ment is also usually not expe­di­ent, as no money is brought in. Hospi­tals rarely have an aware­ness problem, but rather an imple­men­ta­tion problem. The only way out is to bring in a stra­te­gic inves­tor who, in addi­tion to market know­ledge and restruc­tu­ring expe­ri­ence, has the neces­sary finan­cial resources. 

Stra­te­gi­cally inte­res­ted parties include local hospi­tals, natio­nal hospi­tal chains or inves­tors looking for a plat­form to estab­lish outpa­ti­ent chains. Natio­nally active hospi­tal chains include private hospi­tals such as Helios, Askle­pios, Sana, Ameos, Arte­med or Schön, and non-profit orga­niza­ti­ons such as Alexia­ner, Fran­zis­ka­ner, Johan­ni­ter or Agap­le­sion. In the past, local solu­ti­ons were often sought with univer­sity hospi­tals or large muni­ci­pal hospi­tal groups. 

If an M&A sales process is initia­ted in good time, before the threat of insol­vency, the parti­ci­pa­tion of a stra­te­gic inves­tor can be actively orga­ni­zed in a plan­ned, struc­tu­red and orderly manner under the manage­ment of the previous owner. Howe­ver, if insol­vency is immi­nent or has alre­ady occur­red — in addi­tion to over-indeb­ted­ness without a going concern fore­cast — the previous owner of the acute hospi­tal is only a bystan­der in the further struc­tu­ring process. 

After filing for insol­vency, the hospi­tal in ques­tion gives itself some breathing space through the inflow of insol­vency money (up to 80% of opera­ting costs are person­nel costs), the termi­na­tion of unfa­vorable contracts, the suspen­sion of wage tax and VAT payments, etc.

Insol­vency procee­dings are always carried out as dual-track procee­dings. — In other words, an expert opinion on the restruc­tu­ring is prepared inde­pendently and the hospi­tal is sold to a solvent inte­res­ted party at the same time. In order to ensure the best possi­ble satis­fac­tion of credi­tors, purchase bids must be obtai­ned from inte­res­ted parties in addi­tion to the restruc­tu­ring, who then provide the hospi­tal with liqui­dity and restruc­ture it them­sel­ves. The credi­tors ulti­m­ately decide which alter­na­tive they prefer. Liqui­da­tion only takes place if the restruc­tu­ring or sale fails. As the hospi­tal company is subject to public law licen­ses and appr­ovals, e.g. admis­sion as a plan­ned hospi­tal or the appr­oval of subsi­dies, the M&A tran­sac­tion typi­cally takes the form of a share deal and not a trans­fer­ring restructuring. 

If the credi­tors decide in favor of the M&A process, the sale often takes place within a spon­so­ring group or, in the case of a sensi­ble local solu­tion, to an inte­res­ted party outside the spon­so­ring group. The few large M&A tran­sac­tions in the context of insol­vency often invol­ved public acute hospi­tals, such as the imland Klini­ken to the Schön Klinik Group in 2023 or the Fran­co­nian Regio­med-Klini­ken to Sana Klini­ken in 2024. It is not uncom­mon for the previous share­hol­ders to submit an acqui­si­tion offer with a restruc­tu­ring concept that has to measure up to the other offers. In this respect, the former owners can only indi­rectly influence the future fate of their (old) clinic by submit­ting their own offer. — Due to the uncer­tain­ties surroun­ding the hospi­tal reform, exter­nal inte­res­ted parties are curr­ently still holding back so as not to make a suppo­sedly bad invest­ment. It can be assu­med that inte­rest in acute hospi­tals will improve signi­fi­cantly again as soon as the fede­ral states approve (or refuse to approve) the legis­la­tion and initial expe­ri­ence has been gained. 

If the previous owner of the ailing hospi­tal wants to keep the reins in its hands, it should consider an M&A process at an early stage and not just try to exert indi­rect influence from the side­lines as a spec­ta­tor in the event of insol­vency. The M&A process is not a subor­di­nate solu­tion, but an equal compo­nent of any insol­vency procee­dings along­side the restruc­tu­ring attempt on the company’s own initia­tive. Early invol­vement includes inten­sive conside­ra­tion of possi­ble restruc­tu­ring measu­res before the threat of or actual insol­vency, timely cont­act with exter­nal inves­tors and the syste­ma­tic coll­ec­tion of docu­ments rele­vant to valua­tion and tran­sac­tions. Once insol­vency procee­dings have been applied for, time and resour­ces for initia­ting the sales process are extre­mely limi­ted and can hardly be influen­ced by the former owner. 

As this is the first (and hopefully last) time that the hospi­tal and its owner have been confron­ted with such a crisis situa­tion, it makes sense to appoint an M&A advi­sor at an early stage who not only has the neces­sary M&A expe­ri­ence in insol­vency procee­dings or insol­vency-rela­ted cases, but also the specia­list and market exper­tise. The manda­ted M&A company should defi­ni­tely have relia­ble cont­acts with credi­tor banks and savings banks, poten­tial inte­res­ted parties and rela­ted advi­sors. Only those who are fami­liar with the sensi­ti­vi­ties, prac­ti­ces and needs of credi­tors and stra­te­gic inves­tors with restruc­tu­ring expe­ri­ence can carry out the prepa­ra­tory measu­res for an M&A process in a targe­ted manner in the short time available. 

Inci­den­tally, the insol­ven­cies of larger care chains such as Convivo, Dorea, Curata Care, Hansa Pflege and Novent have also recently attrac­ted atten­tion as a further group of health­care provi­ders in the highly frag­men­ted market for inpa­ti­ent care faci­li­ties. Local closures of stand-alone nursing homes, on the other hand, go unno­ti­ced in the nati­on­wide percep­tion, although they repre­sent the majo­rity of insol­ven­cies in this sector. In prin­ci­ple, the solu­ti­ons for hospi­tals in crisis also apply to care companies. 

About Dr. Andreas Lange­mann, andreas.langemann@cf-mb.de

Dr. Andreas Lange­mann has more than 25 years of M&A and finan­cial exper­tise with consul­ting firms, invest­ment banks and a health­care group, inclu­ding as mana­ging direc­tor and most recently as head of the M&A divi­sion of a consul­ting firm in the health­care sector. In addi­tion to the health­care sector, he has specia­li­zed in public service companies. 

Dr. Lange­mann has successfully comple­ted nume­rous purchase and sale manda­tes, asset sepa­ra­ti­ons and tran­sac­tions in special situa­tions. In addi­tion, he has prepared feasi­bi­lity and restruc­tu­ring studies, analy­ses for the market entry of finan­cial inves­tors and expert opini­ons on company valua­tions. Dr. Lange­mann regu­larly gives guest lectures at the Fried­rich Schil­ler Univer­sity in Jena on M&A and accoun­ting topics and publishes regu­larly in specia­list journals. 

About Corpo­rate Finance Mittel­stands­be­ra­tung GmbH

Corpo­rate Finance Mittel­stands­be­ra­tung GmbH (CF-MB) was foun­ded in August 2012. The CF-MB team consists of expe­ri­en­ced consul­tants. A large part of the team brings many years of expe­ri­ence, exten­sive cont­acts and profes­sio­nal product know-how in the field of corpo­rate finance from their work at the former WestLB AG. — www.cf-mb.de