3i invests in health of Romania

By bne IntelliNews February 9, 2007

Anca Paduraru in Bucharest -

The Romanian health services firm Unirea Medical Center (CMU) confirmed Tuesday that it has sold a minority stake to the UK-based private equity firm 3i.

The latest deal is a further sign that Western private equity firms are increasingly looking toward the two latest additions to the EU to invest in, with energy, healthcare and infrastructure apparently the most targeted sectors.

Sergiu Negut, executive manager for CMU, called the minority stake that 3i acquired as "significant", but refused to divulge the actual size. However, he told bne that 3i did not acquire a controlling stake in the firm and that the founder of the firm, Wargha Enayati, and his family members would continue to have majority control.

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Typically for such deals, the price 3i paid for the stake wasn't revealed either, though CMU had revenues of €6m in 2006. Negut said that 3i's investment in CMU is the biggest foreign investment to date in Romania's health services market, which is still "too small and too fragmented a market to appeal to large investments."

In 2005, there were 219 private clinics operating in Romania compared with 30 public ones, and 11 private hospitals versus 422 public ones, according to data released by the National Institute for Statistics on Wednesday. CMU operates eight medical clinics in the capital Bucharest and cooperates with a network of private clinics in the rest of the country, providing health services to over 160 corporate clients, most of which are multinationals.

Hein van Dam, director with the Romanian branch of the consultancy Deloitte & Touche, reckons that Romania’s pharmaceutical, healthcare and medical services have been and will continue to be attractive places for private equity because of the strong underlying growth and the rapid consolidation taking place.

"We expect strong growth in private equity activity, because on the one hand Romania is an attractive investment option, and on the other hand people are becoming more aware of private equity as an investment and financing option," van Dam says.

Radu Stoicoviciu, director with PricewaterhouseCoopers in Romania, says that within sectors such as energy, healthcare and infrastructure, the target companies will ideally be market leaders, with strong management teams and good corporate governance. "Most importantly, the target shareholders shall ensure an exit to the private equity in the foreseeable future, meaning three to five years," he says.

The EU factor

Analysts say the growth in private equity investment into Romania is linked to the country’s recent EU accession, since many investors are restricted by their mandates to invest only in member states, as well as the region's high economic growth compared with that of Western Europe. Romania’s foreign direct investment for the first 11 months of 2006 stood at €8.3bn, up 89.8% from the same period a year ago, according to data released by the Romanian Agency for Foreign Investment, or ARIS.

"Central Europe as a whole is an attractive investment proposition. However, Romania is particularly attractive because it is a large consumer market, with strong GDP growth and relatively stable macroeconomic fundamentals when compared with those of Hungary, for instance," says van Dam. "Therefore, by pure definition, Romania has the potential to attract more private equity funding."

The increasing competition among private equity firms and strategic players will inevitably push up the prices of assets.

"The outcome will be a reduction of the return on investment to levels more comparable to more mature countries – i.e. a return of 20% to 30% per annum – in comparison with the capital multiplication factor of more than seven over three years, which was achieved in the past by some private equity investors in Romania," Stoicoviciu says.

This effect will be compounded by the limited number of assets that are of a sufficient size to attract private equity players.

"The problem of the largest private equity players eyeing Romania is the lack of sizeable targets – larger players would be very interested in Romania provided that targets allowing transaction values in excess of €100m would be available," he says.


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