IHH said it will pay RM3.92bil in cash to fully acquire Island Hospital.
PETALING JAYA: IHH Healthcare Bhd
is positioning itself as a medical tourism powerhouse with the proposed acquisition of Island Hospital in Penang for RM3.92bil, after reportedly outbidding Sunway Bhd.
Once the purchase is completed, tentatively by end-2024, more than one out of three medical tourists into Malaysia will be utilising IHH’s network of 18 hospitals.
IHH said its medical tourism revenues will also double, with increased access to the Indonesian catchment area. In 2023, about 55% to 60% Indonesian medical tourists chose Malaysia for their treatment.
IHH is 25.94% owned by Khazanah Nasional Bhd, which in turn is wholly-owned by the government.
The acquisition of the 600-bed capacity Island Hospital comes with a vacant land adjacent to the currently built hospital, valued at RM223.4mil.
Approvals have been secured for future development with a gross floor area of over 120,000 square metres.
The land can be used to build the third wing for Island Hospital, with the potential to add additional capacity of about 400 beds.
In a stock exchange filing yesterday, IHH said it will pay RM3.92bil in cash to fully acquire Island Hospital, which has a net debt of RM276.3mil as at end-June 2024.
IHH’s indirect wholly-owned subsidiary, Pantai Holding Sdn Bhd, has entered into a sale and purchase agreement with Comprehensive Care Sdn Bhd (CCSB) as the seller for the proposed acquisition.
CCSB is 78%-owned by private equity firm Affinity Equity Partners, 16% owned by Mark Wee (the founder of Island Hospital), and 6% owned by 41 other individual shareholders.
Excluding the value of the vacant development land, the enterprise value of the transaction implies 19.2 times of the earnings before interest, tax, depreciation and amortisation (Ebitda) for the six-months ended June 2024 (6M24).
The 6M24 Ebitda represents a 45% year-on-year growth. IHH expects the growth momentum to continue into 2025.
“IHH expects more than RM200mil in synergies over the next five years following the acquisition, with expected Year 1 synergies of RM25mil,” the healthcare giant said, referring to expected increase in Ebitda.
It further added that the purchase of Island Hospital is expected to be earnings per share and return on equity accretive from Year 2 (2026).
The proposed acquisition will be funded via internally generated funds and external borrowings, the proportions of which have yet to be finalised at this juncture.
The funding mix will be determined at a later stage after taking into consideration the internal cash requirements, gearing level and interest costs of IHH.
It is worth noting that the acquisition of Island Hospital carries impairment risk.
“IHH expects to recognise goodwill arising from the proposed acquisition, the amount of which is determined based on the excess of the fair value of the consideration paid against the fair value of the net identifiable assets acquired as at completion date.
“Any impairment on the carrying amount of goodwill arising from the proposed acquisition and the assets acquired may materially and adversely affect IHH’s financial position and performance.
“IHH will monitor the financial performance of Island Hospital and work with the management of Island Hospital to drive the committed business plan towards the achievement of the financial targets of Island Hospital.”
Established in 1996, Island Hospital’s core specialties encompass orthopaedics, cardiology, oncology, gastroenterology and general surgery.
It currently has nearly 119 resident and visiting specialists across nine centres of excellence, which IHH described as the “largest specialist pool”.
Island Hospital is in the midst of scaling up its operations and has doubled its built bed capacity from 296 beds in the third quarter of 2022 (3Q22) to a total of approximately 500 beds in 3Q24, with an ability to expand to 600 beds with minimum capital expenditure.
Post acquisition, IHH will have more than 1,000 operational beds in Penang.
Island Hospital is expected to see over 430,000 outpatient visits and 42,000 inpatient admissions this year, with about RM12,000 average revenue per inpatient admission. It also performs about 16,000 surgeries per year.
“By aligning commercial practices and operations with IHH, including consolidating procurement, Island Hospital can enhance efficiency in its operations.
“As part of the broader IHH network, it can also drive more cross-referral opportunities to better serve more patients in Penang and across Malaysia for greater revenue synergies.
IHH is one of the largest private healthcare providers in Malaysia, with a network currently comprising 11 Pantai Hospitals, four Gleneagles Hospitals, as well as Prince Court Medical Centre and Timberland Medical Centre.
Island Hospital will become the 18th hospital and one of the largest hospitals in the IHH Malaysia network.
IHH group chief executive officer Dr Prem Kumar Nair said: “We expect significant synergies from the transaction and a unique opportunity to elevate Island Hospital as a leading integrated medical facility in Asia.”
