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Life Healthcare rights issue successful amid tough conditions

RMB says SA corporates, investors are favouring diversification into hard currencies and stable markets.

Rand Merchant Bank (RMB) has described a rights issue, which formed part of Life Healthcare’s acquisition of Alliance Medical Group, as noteworthy against challenging macroeconomic and market conditions.

In a bid to grow its complementary services and diversify its business beyond South Africa, the private healthcare group announced that it would buy the UK-based molecular and diagnostic imaging specialist firm for as much as £626 million late last year.

The acquisition was funded by bridge loan, set to be repaid in part, by way of a R9 billion rights issue.

RMB, which underwrote 50% of the rights issue, described its implementation and subsequent success as “particularly noteworthy” given challenging market conditions.

The period in which the rights issue was open to shareholders was marked by the recall of former finance minister Pravin Gordhan, a cabinet reshuffle and two sovereign credit rating downgrades to sub-investment grade. This coincided with negative news flow and trading updates from the healthcare sector.

“These events created significant risk for the transaction, the company and the underwriters. Risk appetite for South Africa, investor sentiment towards the healthcare sector and general market conditions were deteriorating. We were raising funds against a market and share price that was falling quite rapidly.

“Life initially funded the entire acquisition with debt, giving rise to temporary unsustainably high debt levels which needed to be refinanced in the short term. By underwriting the rights issue, the banks gave comfort to the company and its shareholders that the necessary equity would be raised, regardless of market conditions and unforeseeable events. This situation highlights the real benefit that equity underwriting provides,” said Stephen Friesenecker, co-head of Equity Capital Markets at RMB.

The rights issue was ultimately oversubscribed, with a 98% take up by qualifying shareholders.

Friesenecker went on to add that the acquisition and strong shareholder support plays into a broader theme of South African companies expanding internationally and investors seeking offshore exposure and protection from a depreciating rand.

He said whereas opportunities in the rest of Africa had previously been a strategic priority for many companies, there has now been a shift in attention towards stable, developed markets with hard currencies.

“However, international diversification is not sufficient and the underlying assets must makes strategic sense for the company.

“In Life Healthcare’s case, the acquisition of Alliance Medical fits squarely with the company’s stated strategy to diversify its business beyond private acute healthcare into complementary services,” he said

Alliance Medical, one of Europe’s leading providers of diagnostic imaging services, operates more than 200 sites in eight European countries and enjoys strong market positions in the UK, Ireland and Italy.

In addition to the rights issue, RMB acted as advisor to Life Healthcare on the acquisition and facilitated the deal by providing a portion of the bridge facility and associated hedging.

“RMB aims to be a full-suite investment bank to our clients and ensure that we bring the full spectrum of our capabilities and provide holistic solutions to our clients,” he said.

RMB has a long-standing, well-established relationship with Life Healthcare, having been a shareholder through its private equity division RMB Ventures prior to its listing. It also facilitated the private healthcare group’s listing and initial public offering on the JSE in 2010.

Brought to you by RMB.

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