|Investment date||October 2015|
Grupo Fleury is the largest provider of premium medical diagnostic services in Brazil. Fleury, under several brand names, operated over 150 patient service centers, performed more than 60 million exams per year, and served over 9 million patients across Brazil.1 The company focuses on three areas; patient service centers (PSCs) that provide diagnostic services directly to patients; hospital operations, which deliver diagnostic services for partner hospitals; and the reference laboratory segment that performs complex tests for other labs and clinics.
AN EYE FOR A LATIN AMERICAN GROWTH STORY
The diagnostic market in Brazil is highly fragmented, and we identified Fleury as one of the most respected medical and healthcare organizations in Brazil, as evidenced by the fact that the company is recommended for diagnostics by approximately 70% of physicians. We were optimistic we could leverage the stellar reputation that Fleury had to strengthen the company’s competitive position further and increase market share. We also believed that Fleury’s business model was more resilient, given the nature of healthcare in Brazil, which is not a co-pay system and, therefore, not highly correlated to the economy.
In October 2015, Advent acquired a 13% stake in publicly listed Fleury from the physician group that founded the company and then purchased a further 1.5% in the open market.
“The demand for diagnostic medicine is growing steadily in Brazil due to the country’s expanding access to healthcare services, an aging population, and an increased focus on preventive medicine. Fleury is strongly positioned to benefit from these trends,” said Juan Pablo Zucchini, a Managing Partner in Advent’s São Paulo office. “We believed that by applying our global healthcare expertise and local market knowledge, we could further strengthen Fleury’s position as an innovative and leading player in the Brazilian healthcare industry.”
Advent’s recent healthcare investments in Latin America include regional specialty pharmaceutical maker Biotoscana, which then acquired United Medical, a Brazilian pharmaceutical company; and Laboratorio LKM, one of Argentina’s leading specialty pharmaceutical manufacturers.
The value creation plan for Fleury included increasing the number of patient centers, expanding service offerings at existing centers, and improving operational efficiency across Fleury’s complex network to drive continued growth.
Independent Industry Advisors David Schreiber, former VP and General Manager of Quest Diagnostics, a major provider of diagnostic services with more than $7.5 billion in revenues, and Andre Staffa, former CEO and CFO of Hospital e Maternidade São Luiz, one Brazil’s largest hospital chains, played crucial roles in the plan’s success.
In terms of operational improvements, Fleury optimized the exam mix in its patient service centers to increase effective capacity. These moves increased profitability and the volume of tests the company could offer using its existing infrastructure. Advent also brought their previous procurement experience to bear as Fleury renegotiated contracts with suppliers and improved procurement processes, generating approximately R$90 million in annual savings. Fleury also implemented a set of initiatives that significantly reduced the number of unreimbursed claims enabling them to capture roughly R$40 million.
To increase its top line, the company drove double-digit growth in same-store sales through expanded operating hours and broader patient service offerings at its care centers. Fleury also accelerated the pace of new patient service center openings. In the first half of 2017, Fleury opened 15 service centers, more than five times the rate of previous years.
GOVERNANCE AND CARE YIELD HEALTHY RESULTS
These various initiatives contributed to strong financial performance at the company. Grupo Fleury’s performance improved sharply; corporate governance improved, EBITDA margins increased, and the company sustained its accelerated growth strategy.
Advent exited its investment in September 2017 through a block trade of its shares, which rose 255% during Advent’s ownership. During Advent’s holding period, Fleury's return on invested capital increased from 18.7% to 40.3%. Comparing results for the first six months of 2017 with the same period of 2015, net revenue increased 28%, from R$926 million to R$1.2 billion, EBITDA grew 66%, from R$195 million to R$325 million, and the EBITDA margin rose 630 basis points, from 21.1% to 27.4%.
Grupo Fleury remains well positioned to continue its expansion plan and solidify its position as the leading premium diagnostic services provider in Brazil.
1 as of September 25, 2017/Advent's exit