VAL GOODING, boss of the private healthcare group Bupa, was in Australia last
month on business. Her trip coincided with the Melbourne Cup, a hugely
popular horse race. Gooding was not terribly interested in the outcome, but
she was keen to secure a winner of her own.
She had gone down-under for a regular meeting with the management of Bupa’s
Australian operations, but she took time out from her briefings to attend to
other business – securing the acquisition of MBF Australia, a rival medical
insurer.
Her visit paid off. Nine days ago the board of MBF announced that it would
recommend a £1 billion proposal to merge with the British company. The deal
is the third large overseas transaction that Gooding has been able to
announce in the past few days.
As well as MBF, Bupa completed the purchase of Amity Group, a care-homes
operator in Australia and New Zealand, and said it would pay £310m to buy
the outstanding shares it doesn’t already own in Health Dialog, an American
company that provides healthcare data.
The hat-trick of deals confirms that overseas interests are becoming an
evermore significant part of the business. Once these transactions are
sealed, revenues from outside Britain will account for more than half of all
turnover.
Gooding said that there could also be more to come. For example, Bupa has a
strong presence in health insurance in the Australian states of Victoria and
South Australia, while MBF is dominant in New South Wales and Queensland.
“But there are other bits of Australia,” said Gooding, who has been chief
executive of Bupa since 1998.
“At some stage, after we have merged these two businesses, we will be the
leading player in Australia. But the country has a long tail of medium-sized
and small insurers and people with smaller market shares where we think we
can add something,” she said.
There is also the possibility of acquisitions that could take the organisation
into new product areas. Bupa’s smaller rival Nuff-ield announced this month
that it was buying Cannons, the fit-ness-club chain. Gooding said that
moving into the gyms market was a “possibility” for Bupa.
Financing these and any follow-up deals is unlikely to prove problematic, not
least because Bupa is flush with cash just now. The group is not a
conventionally structured company but a “provident association”. It is a
company limited by guarantee and with no shareholders. All the profits it
makes must be reinvested in the business.
But Bupa behaves like a commercial entity. Six months ago, it raised £1.4
billion from the sale of its 25 UK hospitals to Cinven, the private-equity
firm. Despite its recent shopping spree it is this disposal, in the year the
company celebrates its 60th anniversary, that really marks the biggest
milestone in Bupa’s recent history. The deal was transforma-tional – and a
confident move from a business that posted a 9% rise in turnover to £4.2
billion in its last full financial year – but it was not without controversy.
One media report suggested that Bupa’s decision to quit its hospital business
prompted the then chairman, Bryan Sander-son, to resign from the board some
months earlier than had been expected. He reportedly said at the time: “I
have no quarrel with the board, but a watershed had been reached. You have
to think about what a provident association is for. At a time when there is
a lot of anxiety about NHS hospitals, is this the right time for Bupa to be
exiting? A provident association should exist for its customers. They must
come first.”
Gooding played down talk of any rift, insisting that the nine-man board’s
decision to approve the sale of the hospitals was “unanimous”, and suggested
that some commentators were making too much of any supposed controversy.
Bupa, she pointed out, has been in and out of the hospital business before,
and the most recent case should be seen in that context.
The rationale for the decision this time was twofold. In part, it was a
recognition that Bupa would struggle to grow its hospitals business,
especially after the proposed acquisition of a rival operator in 2000 was
blocked on competition grounds. By selling the hospitals, the group also
avoids the accusation that it has a conflict of interest when offering both
health insurance and treatment.
Gooding said that she hoped the sale would allow Bupa to slow down the rate at
which premiums increase for its customers. “We will have to work with our
hospital partners to keep costs down,” she said. And both businesses, she
said, would be significantly improved by being separated from each other.
“We had two businesses with constrained potential. Now they are free of that
encumbrance.”
But the sale of the hospitals has prompted some industry observers to reopen
the debate over Bupa’s unusual corporate structure and whether it should
stay this way. Some think that its provident status is an anachronism, and
that if it is prepared to sell off its hospitals, why not go the whole hog,
restructure the organisation and sell it to the highest bidder, whether that
be a rival insurer or a private-equity investor. There would be no shortage
of interest if the board ever has a change of heart – one investment banker
described Bupa as “the Holy Grail” of deals.
“The sale of the hospitals did not really change anything,” said Gooding.
“We’ve sold businesses before and we’ve got out of hospitals before.”
Asked whether she regularly fields calls from people interested in buying the
health insurer, Gooding simply smiled and said: “They’ve given up.”
For the board, the subject of a possible demutualisation is something of a
tiresome old chestnut, and Gooding holds no truck with the idea that a more
commercial structure would be beneficial. “If the business is performing
well, why would [the structure] need to change? If it’s working well and
achieving growth and can attract customers, then that sounds like a good
business model. If we were a company failing on a number of dimensions, then
it becomes a different conversation.”
It’s true that Bupa is managing to meet the goals it sets itself. At its
interim results last September, the company announced that its pretax
surplus had climbed to £166m, while revenue had grown 10% to £2.1 billion.
Gooding said that, despite its firm belief that remaining a provident
association is the best option, the company reviews its structure “on a
regular basis”. However, she added that the board does not “spend a lot of
time navel-gazing”.
Indeed. Gooding has more pressing matters to address. Last week it emerged
that Bupa is not the only healthcare organisation to be taking a more
international view of life. Politicians in Brussels, it was announced, are
examining the possibility of a pan-European market for healthcare so that,
for example, NHS patients could travel to another EU country to receive
treatment.
Given that some of Britain’s continental neighbours have better public
healthcare systems than the NHS, might this not have a detrimental impact on
Bupa? After all, why pay if you can pop across the Channel and be treated at
no charge.
Gooding does not think so. “There would have to be a huge sea-change in
treatment in Europe or NHS improvements for most of our customers to give up
health insurance and we have absolutely no evidence [that there is going be
a big change].
“The NHS has improved, and it doesn’t get the credit for the improvements it
has made, but has that impacted us? Not at all,” she said.
OLDER THAN THE NHS
BUPA has been around longer than the National Health Service.
The British United Provident Association was established in 1947, when 17
regional provident associations decided to pool their operations.
When the NHS was formed in 1948, Bupa thought there would still be a need for
an alternative form of healthcare, and it thrived.
At its inception, Bupa catered for about 40,000 people. Today, it has more
than 8m customers in 190 countries. The international business started when
Bupa began insuring British expatriates.
The group has steadily diversified. For example, in 1969, Bupa opened its
first health-assessment centre for “wellness” in London.
Today, it caters for the young, through the Teddies nursery chain, and the
elderly, with a network of care homes. It also has stakes in a number of
businesses, such as the fitness group Add Leisure.
This year Bupa made a big break with the past when in the summer it sold its
hospitals to focus on insurance. It had already sold some of its smaller
hospitals two years earlier.
There could be further disposals. Teddies is one business that is unlikely to
stay part of Bupa in the long term.
