The regional medical sector is undergoing a consolidation trend and currently sees investment flows from the private sector as it offers promising prospects for investors, according to the managing director of Emirates Investment bank.

The Dubai-based bank advised the selling shareholders of United Arab Emirates-based health aesthetics firm Medica Holding in the recent deal in which private equity firm Gulf Capital acquired a majority stake in the company.

“We definitely see an appetite for more acquisitions and transactions in this field (medical sector). Regionally, Saudi and Egypt continue to be the most attractive markets for regional and international investors in this field,” said Husam Kutaifan, Managing Director and Head of Investment Banking at Emirates Investment Bank.

The medical sector has also gained further traction due to the governments’ priority in reducing oil dependency for the future, according to him.

“The outlook for the Gulf Cooperation Council (GCC) medical sector is promising, as we see more demand for services and products because of the increasing population, ageing population, and increased occurrence of diseases,” Kutaifan said in emailed responses to questions by Zawya.

The most promising sub-sectors include businesses of dermatology and aesthetics centres, rehabilitation (physical and mental) clinics, as well as dental clinics, according to Kutaifan.

This week, UAE’s alternative asset management firm Gulf Capital announced the acquisition of 70 percent stake of Medica, a service provider of cosmetics, aesthetics, and dermatology products and equipment across the Middle East. Read more here:

Emirates Investment Bank advised the selling shareholders of Medica in executing and coordinating the various activities related to the transaction, including guidance on valuation, financial, transaction structuring and general business matters, according to EIB’s Kutaifan.

“The most favourable element of the deal was the strong growth track-record for Medica, which has proven to be resilient to the industry’s volatility. In addition, the experienced management team were a valuable asset who have grown Medica to become the leading distribution of aesthetic equipment in the Middle East,” he said.

In terms of challenges, identifying and selecting the right partner for Medica and the selling shareholders was one of them, according to him.

“We needed to make sure we find a partner who would share Medica’s vision for its development and growth,” he said.

“We also helped the company identify areas that create the most value, while we assisted in preparing the company to an equity transaction of this scale,” Kutaifan added. 

“We believe Medica is now in a great position for remarkable growth and expansion. Gulf Capital’s deep knowledge in the distribution sector, combined with their regional experience, will help drive further value creation for Medica,” he said.

Global medical aesthetics market is estimated at $10.3 billion in 2018, and set to grow at more than 10 percent rate annually to reach $17.1 billion by 2023, according to research report by MarketsandMarkets. This growth is driven by rising adoption of minimally invasive and non-invasive cosmetics procedures, increased acceptance from men and women, technological advancements, and the rise in GDP per capita. Read more here

Overall investment sentiment

Looking into the current investment environment in the UAE, Kutaifan said that the recent shift in purchasing power has led consumers to become discerning, which in turn, has put pressure on margins across different sectors.

“In this changing environment, companies are becoming more efficient by either shedding extra cost or opting to grow by building scale. This is paving the way for a consolidation trend, similar to the current trend in the banking and financial services sector in the UAE,” he said.

A report published by consulting firm McKinsey & Company this month said that consumers in the region are changing their buying behavior, spending less while expecting more convenience.

The report surveying 2,000 consumers in two of the largest economies in the Middle East, the UAE and Saudi Arabia showed that fear of unemployment is on the rise, with more than 40 percent of respondents in both countries saying that they are cutting down on spending. Read more here

However, there is still a strong appetite for the defensive sectors and investors are becoming more focused on sub-specialties within these sectors, according to EIB’s Kutaifan.

“For example, we are seeing increasing interest across diabetic centres, oncology centres, and genetic laboratory, in the healthcare sector,” he said.

Research and consulting firm Frost & Sullivan said that the region is witnessing increasing demand for healthcare services with prevalence of chronic diseases still on the rise. The firm estimates that Gulf countries will represent 13 percent of global revenues for healthcare products, with services growing at 12 percent.

For the GCC governments, public health expenditure remains a priority despite the pressure from oil prices, according to the consultancy, and the private sector will play a key role through public-private partnerships. Read more here

(Reporting by Nada Al Rifai; Editing by Mily Chakrabarty)

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