RMB’s Business Development Director, Jessica Spira was intimately involved in the two mega transactions that catapulted SA’s MediClinic into the Top 100 companies listed on the London Stock Exchange. She tells Alec Hogg how the billions were raised and applied, the strategy followed by the MediClinic management team and how the group has transformed into a serious global player as one of the top three non-US private hospital groups in the world.
This special podcast is brought to you by RMB, who’s Jessica Spira joins us now. Jessica, you guys have been really busy with Medi-Clinic. Maybe let’s just start at the beginning. Medi-Clinic is a well-known listed company on the Johannesburg Stock Exchange. How long does your association go back with them?
Medi-Clinic has been one of our clients for a long time through their strong relationship with the Remgro Group. Our involvement with them first started when we worked on a restructuring of their debt for the Hirslanden Group, which is their Switzerland-based hospital group.
They’ve been pretty, aggressive in their global expansion. Just explain to us how that works – management of a company gets an idea, do they then approach their bankers, in this case RMB, and say ‘this is what we’d like to do – have you got suggestions’?
Not necessarily. Most of the business growth that they’ve had, has been driven by the management team themselves: Danie Meintjes and Craig Tingle who have been spearheading the business’s growth internationally. They also have been very, well supported by their major shareholder, Remgro, who have been assisting them in their growth aspirations. They acquired Hirslanden in Switzerland some time ago which they have grown quite aggressively through a number of acquisitions of various hospitals. They also started growing the business in Dubai a few years ago. This growth was more organically than necessarily acquisitively, but they have grown it through acquisitions along the way.
The two acquisitions that they did in the past year were driven by I guess, opportunistic factors. The first transaction, which was announced in July 2015, was an acquisition of a 29.9 percent stake in the Spire Health Group, which is a LSE-listed private hospital group. They bought as much as they could, without triggering an offer for the whole company, from a private equity shareholder, who was looking to exit their investment. The Spire Healthcare is one of the leading private hospital groups in the UK with about 39 private hospitals in England, Wales, and Scotland.
How does it compare with the one that we know in South Africa, the Netcare operation there?
I think they are pretty much on a par. They are very, well respected and well represented across the country.
That was into the UK and then the Al Noor transaction, which was a bit of a catapult.
The Al Noor transaction started at around the same time, when we were exploring the Spire transaction, so it was really quite a frenetic time for everyone involved. Medi-Clinic was looking to grow their presence in the UAE. They already had quite a large presence in Dubai. In fact, they were the largest hospital group in Dubai, and Al Noor is a large private hospital operator in Abu Dhabi, so it was a natural fit for them to look at acquisitions in this space. Now they are very dominant in the region.
Jessica, just take us through a little bit of the soft issues that might be involved here, when you do an international acquisition like that – different cultures, particularly in Abu Dhabi, which might be a little more conservative to what the staff at Medi-Clinic are used.
The Al Noor Hospital Group was already listed on the LSE. The transaction with the Al Noor Group was a reverse listing of Medi-Clinic into Al Noor, so a lot of the interaction from a corporate finance perspective was with the London based management team. From a cultural perspective, we were quite well balanced. We worked a lot with the London based team and many of the transactional based interactions related to regulatory matters, such as the LSE, the UK Listings Authority, as well as the South African regulatory requirements that were necessary in order to make the transaction happen.
From a Middle Eastern perspective, Medi-Clinic has an established business in Dubai and they have been conversing with their counterparts in the region. I think from a cultural perspective, they were already well established there, so it wasn’t a big mind-shift for them.
Yes, so they knew exactly what they were getting into.
Yes, absolutely. I think one of the big reasons for them to grow in the region was drawn on the potential synergies of being a dominant player in the region. Medi-Clinic has become a globally dominant hospital group – in fact, they are now the third largest, non-US private hospital group in the world.
With the 29.9 percent of Spire, are there aspirations, to take that up?
I think this is the million Dollar question for Danie Meintjes. I think at this stage, there’s nothing in the pipeline. Clearly, they’ve got quite a lot to digest. They’ve got the Al Noor transaction to digest, which is a full integration of that business into theirs, as well as getting used to being a listed LSE company.
The different geographies, when you are dealing with a client, which was primarily South African based. Then into Switzerland, as you’ve explained, then the Middle East, and now into the U.K. as well. Does it bring complexities from the banking perspective and of course, from the managerial perspective of your client?
Well, funny enough, fortunately with these two transactions we actually had the opportunity to relook the structure of the group as a whole. While we were doing this transaction we simplified and streamlined the group structure from a corporate structure perspective, so that, going forward, it was a lot easier to deal with them, in terms of capital raising.
The group organogram is a much more, cohesive group structure that we can now fund effectively and one that the market will understand. Obviously, with the primary listing on the LSE, a secondary listing in South Africa and in Namibia as well – there is an opportunity to raise international capital. In fact, Medi-Clinic International is now part of the FTSE100 index, which is a fantastic opportunity for Medi-Clinic to raise global capital. Many of the index trackers are following Medi-Clinic now because they have to.
Was that part of the intention, to become part of the FTSE 100?
It was an absolute win for the group because that’s going to really, help them in terms of any future growth opportunities, but it wasn’t the main driver. I think there were a number of different drivers that made them chase after the transaction.
We haven’t even started speaking about the funding. How much money was involved in both of these transactions and how big an impact did that have on the capital structure of Medi-Clinic?
Funding for the Spire transaction was an interesting transaction because Remgro was the main shareholder in Medi-Clinic, and also because of the way it was structured and able to raise funding very quickly. It was able to quickly, access funding, to make the acquisition for Spire, which was about R8.5bn.
They warehoused the transaction on behalf of Medi-Clinic. Remgro bought the stake, and then Medi-Clinic raised the ten billion Rand rights issue, and then bought the stake from Remgro. That was financed purely through a rights issue through existing shareholders. It was fully taken up and well supported by the shareholders. It was an interesting case because Remgro has a stated of intention of assisting its investment companies to grow internationally and elsewhere, and support their companies into their growth strategies.
How much money did you have to find from outside parties, outside of Remgro, to support that?
We had to provide some bridge funding into Remgro, to help them buy the stake. We did go out into the market to backstop some of that for our own portfolio management, but basically, it was bridge funded by RMB.
The rights issue itself – by this stage, clearly, there would be quite a lot of international shareholders in Medi-Clinic. Did you tap them in (London, New York, Boston)?
Remgro obviously followed its rights, so that was a major component of the rights issue which meant we had the full support from Remgro – leading to the fact that most of the other shareholders would have followed their rights in the rights issue. Very few didn’t follow. Because Remgro had underwritten the rights issue, they took up a few extra shares in the rights issue, thereby effectively increasing their stake, but only slightly.
It made it a fairly, easy transaction, from that perspective. What about Al Noor – that might have been a bit more complicated?
The Al Noor transaction was a lot bigger and far more complicated, because it was a reverse takeover. It was an R31bn transaction. Effectively, it was structured by Al Noor acquiring Medi-Clinic via a South African scheme of arrangement. Medi-Clinic therefore became part of Al Noor as a listed LSE company, and then we relisted that group in South Africa as a secondary listing on the JSE.
Exchange control issues, were they complicated?
We were faced with a number of regulatory issues such as exchange control issues, the Competition Commission, JSE authorities and the TRP. Over and above the South African regulatory issues, we also dealt with regulatory issues from the UK Listings Authority, because of the nature of the transaction. There were a number of very, complicated regulations we had to comply with. In addition we had two interlopers, who, potentially could have put in a competing bid, almost right at the last minute, which was extremely stressful for us as a transaction team. Fortunately, none of that transpired. From a funding point of view there was a large amount of cash that had to go into the transaction, because of the way that it was structured.
It came about as Remgro subscribing for 600m Pounds worth of Al Noor shares, in terms of the transaction, which was, again another facilitation by Remgro into the transaction. It was a facilitation but also a mechanism by which Remgro avoided dilution of its own share in Medi-Clinic. It therefore was protecting its stake, by subscribing for those shares. RMB funded that, together with Morgan Stanley, as co-underwriters of that debt, which has subsequently been refinanced because it was a bridge finance facility. It was refinanced partially in Rands in South Africa, and a few weeks ago, we placed an exchangeable bond in the offshore market on behalf of Remgro So Remgro issues its paper, exchangeable into Medi-Clinic shares, in five years’ time.
What were the options? What alternatives did you look at that almost were used, rather than the way you went?
The options were really, to make an all cash offer or an offer in part cash and shares. That was really one of our biggest stumbling blocks. An all cash offer would have been extremely expensive and we would have had to raise a lot of debt within Medi-Clinic itself. In the end, Medi-Clinic only had to raise 300-odd million Pounds worth of debt, which again they also raised through bridge financing and we’re currently looking to refinance it, in the term funding market.
Jessica, in these two transactions, coming at the time that they did, as you said the potentially competing bids as well. What happens to people within the organisations when you’re going through this process? Is this a time where you’re like an intern again, you don’t get any sleep?
Oh, absolutely, there were many late nights. It was very complicated and we were faced with a number of headwinds, given the regulatory environment in pretty, choppy markets. At one stage, we didn’t think that there was going to be any cash take up of the offer because of the pricing of the relative stocks, because it was priced on a relative basis between Al Noor and Medi-Clinic. However, because of the weakening of the Rand there was a lot more take up of the cash offer then we expected, so there was a lot more cash that had to go into the transaction.
What happens now to the managerial team? I guess lots of bedding down.
Yes, absolutely, in country. Look, from the Spire perspective it’s a passive investment. There is representation on the board and they are trying to share a lot of IP and work together quite a lot, but it’s a minority stake. On the Al Noor side, there is a lot of integration required. In the Middle East, there’s a great management team there, so they’re working really hard to get that going but I’m sure they’re going to make a great success out of it, as they always do.
The primary listing, shifting to London, how does that influence the future direction of the company? You did mention earlier that you could raise funding internationally. Is that almost like we’ve seen with Steinhoff, open doors to the whole world?
Yes, absolutely. Medi-Clinic has global growth aspirations. The South African business has been a fantastic growth story as a well-established business albeit in a limited market. In order to grow, they need to expand beyond our shores.
How good are they, in a global context, Medi-Clinic?
I think they’ve really proven their worth. They’ve built a great business in Hirslanden in Switzerland. Obviously, it was an acquisition but it’s also a tough market, and highly regulated there, in terms of the way that the hospitals are allowed to operate, regulated pricing, etcetera, but I think their experience in Dubai has been exemplary. They’ve built that business pretty much organically and have done a great job there, so that’s a growth market for them, as opposed to Hirslanden, which is a pretty mature market,. In the Middle East, there are many growth opportunities. It’s an aging population and it’s a relatively underserviced market in the private healthcare space.
From your perspective, from RMB’s perspective, the size and the complexity of this transaction or these two transactions, how do they rank in your all-time top ten, say?
I’m not sure where they fit in the top ten, but it’s definitely one of the most complex transactions we’ve advised on. I think because we were involved, early on, and it required a lot of cross-jurisdictional, multi-disciplinary input, from both RMB and Morgan Stanley as advisers and funders into the transaction. We had to pull in a lot of different sets of skills.
It was actually quite funny. There was an anecdote early on in the transaction. We went to present our ideas, in terms of how the Al Noor transaction was going to work, to our legal advisers in the UK. We presented it and we said okay, this is what we plan to do and in fact, it actually worked out pretty similar to what we initially presented, which often doesn’t happen, but was the case here.
We have heard from them subsequently, that after our meeting one of the partners said to the other this is fantasy M&A and it will never happen. I think we really broke the boundaries of the possible and I think we did a good job, in terms of actually making it happen.
From a RMB perspective again, the fact that you’ve done this now and helped to establish a FTSE 100 company, it might open doors in London that weren’t even considered.
Yes, absolutely I think we’ve learnt a lot from this transaction. I think we’ve learnt a lot about the art of the possible, what we can make happen, within the constraints of our own regulatory requirements, and we’ve learnt on the structuring side too. We’ve learnt a lot about the UK Regulatory Authorities, so we’re hoping to use that information and that IP, to help other clients in different industries.
From the beginning to end, how long did it take?
Actually not that long. I guess we started talking to Spire in about March last year, and we listed Medi-Clinic on the 15th of December 2015 – so it was a pretty short period for doing two major transactions.
And you’re onto the next big one, which you’re not going to tell us about at this point.
Jessica Spira is with RMB, and this special podcast was brought to you by RMB.