Mater Dei has already doubled in dimension since its IPO. Now to attend for the outcomes
- September 21, 2022
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Rede Mater Dei made its IPO a year and a half ago promising to more than double in size in three to five years.
But before completing 12 months on the Stock Exchange, the mining company had already fulfilled its promise with five M&As and a project greenfield in Salvador that added 1,500 beds to their network.
Mater Dei’s stock, however, sank along with the entire healthcare sector, affected by medical inflation and the high leverage of most companies, which are struggling with a Selic of almost 14%.
In the last 12 months, Mater Dei has dropped 54%, in line with Rede D’Or (which loses 51%), Dasa (54%), Kora (65%) and Hapvida (47%). In addition to the bad environment for hospitals, Mater Dei suffered from having a free float very small – only 16% of the capital – and by the redemptions taken by a manager that has a relevant position in the stock.
But the big problem with paper today is the lack of triggers in the short term, according to a long-term manager in the thesis.
“There were many acquisitions in a short space of time, and this needs to be digested. They had never done an M&A and they need to show that they are capable of integrating all these businesses,” said the manager. “It’s a company the way we like it: ‘owned’, well managed and with a successful model. But whoever stays in the action will have to be patient.”
Another manager, who undid his position in the company, said that Mater Dei has to prove that it can replicate in other regions the margin close to 40% that it delivers in Belo Horizonte.
“They bought worse operations than the one they built in BH. So, the first moment is a lower margin with higher revenue. The stock will only pick up as the company increases revenue and margin,” said the manager. “O trigger for this action will be the focus and delivery of results.”
Despite this perception by much of the market, CEO Henrique Salvador told the Brazil Journal that things are better than they seem.
According to him, after Hapvida bought Intermédica and Rede D’Or announced the purchase of SulAmérica, this market concentration is making health care providers more friendly with Mater Dei.
“These recent movements have created opportunities and brought us a lot closer to potential partners,” said Henrique, son of founder José Salvador Silva, now 91 years old and the chairman of the company.
An example is the network’s hospital in Salvador – a market where the presence of Rede D’Or and SulAmérica is very relevant. The Mater Dei hospital was opened in May and already has more than 430,000 lives accredited with plan operators, a number far above the average.
“Given the possible concentration in this square, the operators were more flexible in the accreditation of our hospital,” said Henrique.
According to him, in addition to taking care of recent acquisitions, Mater Dei is analyzing smaller M&As in regions where it already operates, as well as deals in places where it does not yet operate.
“Rio and São Paulo, for example, are the two main markets in Brazil, we always have to keep an eye on them. But there’s no point in going in if you don’t already have a strategic positioning that is relevant,” said the CEO.
Mater Dei still sees opportunities in strategic markets in partnership with other stakeholders in the sector; and is working on new agreements with operators.
“Despite the political and economic instability, the moment is boiling for the sector. We have to dance to the music and we are good at it,” said the CEO, adding that he will only do M&As that add value to the business.
There is ample room on the balance sheet for new acquisitions. Unlike competitors, the company has little leverage: the ratio between net debt and EBITDA is 1.8x.
Faced with the fall in shares, the company has also been approached by funds interested in capitalizing the business.
“We have a healthy and promising business that is currently cheap on the stock market. This is still attractive to potential partners,” said the CEO.
Founded 42 years ago, Mater Dei was born in BH, where it has two hospitals recognized for their premium – it was in one of them that Neymar operated on his foot before the 2018 World Cup – and a third, Betim-Contagem, which serves classes B and C.
Next year, the company will open a smaller, niche hospital in Nova Lima, the city of Greater BH that has one of the highest GDPs per capita in Brazil.
Historically, the BH market is dominated by Unimed, which has more than 60% of share. This hegemony ends up driving prices down.
“One of our secrets is our origin. When you are in a market where revenue is more generous, you tend to be more complacent in controlling costs,” said Henrique. “We were born and raised in a market where this control was very rigidly necessary to have good margins.”
With the operation already solidified in Minas, Mater Dei started to consider an IPO because it saw itself as a consolidator but did not have access to capital.
“There are few hospital networks in Brazil, and the biggest one has just over 60 hospitals. In the US and Europe, there are networks with 100, 200 units,” said the CEO.
With the R$ 1.2 billion it put in the box, the company created two new regional hubs. The Center-West has two hospitals, in Uberlândia and Goiânia. The North-Northeast includes the newly opened hospital in Salvador, one in Feira de Santana and another in Belém.
Each of these businesses is at a different time. “In Uberlândia we are in a turnaround; in Belém it is a consolidation of results, as the hospital is already performing well; in Goiânia, the challenge is to increase the mix of specialties and position it as a general hospital in the city,” said Henrique.
At the IPO, investors who looked at Mater Dei were divided between those who did not want to invest in a company that competes with Rede D’Or; and those who bought the thesis of a new player, which, being smaller, offered the possibility of greater growth.
“The market took the risk of what Mater Dei management in M&As would be like, given that they had never done this, while Rede D’Or has only been doing this for many years,” said one analyst. “But the family is a differentiated operator, which has already shown that it knows how to extract value from this business. Only someone who is a good operator can be a consolidator.”
At Hospital Santa Genoveva, for example, Mater Dei has already taken the EBITDA margin from practically zero to 20% since the acquisition in November. For comparison purposes, Mater Dei’s consolidated EBITDA margin stood at 27.7% in the last reported quarter.
Source: Brazil Journal