The Tribune

• The Kidney Centre to account for 8% of revenue
• Deal pushes it ‘north’ of 1,000 staff, $40m payroll
• 74 staff, management at ex-minister’s firm to stay

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Doctors Hospital yesterday predicted annual revenues will increase by $10m through its acquisition of The Kidney Centre in a deal that will make its workforce more than 1,000-strong.

Dennis Deveaux, the BISX-listed healthcare provider’s chief financial officer, told Tribune Business there will be no cuts to the dialysis and renal disease treatment provider’s 74 staff with the business set to operate as a fully-owned Doctors Hospital subsidiary.

While declining to divulge both the purchase price and projected impact on Doctor’s Hospital’s annual profitability, he added that The Kidney Centre “falls comfortably” within the three-five times’ earnings before interest, taxation, depreciation and amortisation (EBITDA) “range” that it typically targets when making acquisitions.

Affirming that the deal’s financing was debt-free, as is The Kidney Centre, Mr Deveaux told this newspaper that the addition of its employees to Doctors Hospital’s workforce will now take the latter’s annual payroll beyond $40m.

And, aside from the financial impact, he added that Doctors Hospital plans to extend the near 40-year legacy established by The Kidney Centre and its founder/majority shareholder, former minister of health Dr Ronald Knowles, in providing quality and consistent care to Bahamian kidney patients.

“The biggest benefit for our patients is continuity of service, a line of service which has been operating for 40 years with great quality care,” Mr Deveaux said. “It’s an essential service line for the people of The Bahamas, and Doctors Hospital will seek to continue that.

‘It’s really important, with the change in ownership to Doctors Hospital, that there will be no interruption in the quality of service that Bahamians depend on. It’s a service that is required to maintain a healthy and normal life for people that need it. That’s the most important thing: Continuity and quality of care for people that need the service.”

Mr Deveaux and Doctors Hospital confirmed that Dr Knowles will “stay on” for at least three years as a strategic advisor to both itself and The Kidney Centre, with the latter’s existing management also retained to ensure continuity of operations.

“The acquisition took more than a year to plan and collaborate with The Kidney Centre, and we effectively closed the acquisition today,” the Doctors Hospital chief financial officer said. “We made the announcement to The Kidney Centre employees last week so that they had an opportunity to ask questions and get comfortable with the new ownership team.

“We intend to retain Coralee Adderley in her role as managing director, and Dr Knowles, the founder and former minister of health, will stay on for three years to advise Doctors Hospital on its strategy for delivering healthcare across the country.

“We do not intend to make any changes in manpower or staffing, relying on the existing leadership team to run the business as they have done prior to the acquisition. We don’t expect to make any changes in staffing, compensation and benefits. There’s always a degree of anxiety [with ownership changes], and we don’t want that anxiety to distract The Kidney Centre associates - now our associates - from patient care.”

Asked by Tribune Business about the acquisition’s financial benefits, Mr Deveaux replied: “At a high level, we expect this will add approximately $10m, which will represent about 8 percent of full revenues for a normal year. On the earnings side, I would withhold speaking to that.

“I think you can expect this will add about 8 percent to out top-line in a normal year and, on the asset side, about $5m to our balance sheet. We have taken on a company that is debt-free, the company has no debt, and the acquisition did not involve debt to conclude the purchase. We feel it’s a really good opportunity from that perspective....”

The Doctors Hospital finance chief also declined to confirm the purchase price, adding that “to respect the confidentiality we’re not required to disclose that”. However, he then said: “What I can say is that the purchase price involved looking at the profitability of the business. Generally, when we target acquisitions we want to be within three-five times’ EBITDA. This fell comfortably within that range.

“I think that’s probably more than enough to give shareholders. We clearly think the price is fair, and we look forward to realising the benefits of the acquisition in financial terms but, most importantly, continue the service and ensure the quality.”

Mr Deveaux voiced confidence that “return cash flow” generated by The Kidney Centre will more than offset acquisition costs, especially since targeted “synergies” with Doctors Hospital will likely lower its operating costs.

“Shareholders will want to know that the economics of the deal represent a good use of cash,” he acknowledged. “The Kidney Centre is profitable, stable and they’ll certainly grow our margins on a net basis. We’ll look for synergies between the two companies to lower their cost of operations, so the acquisition will release cash flow in excess of what was expended.

“That’s ultimately the financial test of a good acquisition.” However, Mr Deveaux said just as critical will be how the integration of the two companies is managed, with Doctors Hospital planning to align The Kidney Centre with its operations over time while respecting the latter’s traditions and history.

The BISX-listed healthcare provider has traditionally expanded organically, as opposed to growth via acquisition, but its chief financial officer yesterday said it will continue to seek out further deals such as The Kidney Centre if they make sense.

“We continue to be open to different growth strategies,” Mr Deveaux said. “Ultimately, we are going to focus on whatever strategies allow us to expand access to private quality healthcare that are consistent with our standards. This opportunity does that, the terms make sense and, more importantly, the quality of care we’re able to guarantee and continue for the Bahamian people makes sense to us.

“We continue to scan the environment to see where other opportunities like The Kidney Centre exist and we don’t rule out these kinds of approaches in the future where it makes sense... As Doctors Hospital expands and takes on its first major acquisition we want to project the importance of the private healthcare system in supporting needs at a national level.”

The Kidney Centre extends beyond New Providence with operations in Abaco and Grand Bahama, and Mr Deveaux said together with Doctors Hospital both are an “integral” part of this nation’s healthcare network.

“I’m pretty confident this will take us north of 1,000 employees,” he added of the acquisition. “Our annual impact in the local community, in terms of payroll expenses, is north of $40m per year in salaries, benefits and National Insurance Board contributions etc.”