Brazil’s Oncoclínicas to test market with US$666 milion IPO

RIO DE JANEIRO, BRAZIL – Oncoclínicas has decided to go to the market with an initial public offering (IPO). The company’s base offer should reach R$3.5 billion (US$666 million), lower than the company’s initial intention when it planned to list its shares on the B3 exchange.

The value represents the amount of the operation with no additional and supplementary lots,  which considers the midpoint of the price range suggested per share ranging from R$22.21 to R$30.29.

The operation could reach a maximum of R$4.8 billion were it to come out at the top of the price range – something that not even SmartFit wanted to do despite demand exceeding supply by a factor of 20. This if hot issue (additional) and greenshoe (supplementary) shares, designed to meet high demand scenarios, are included in the total.

In any event, the maximum capital raise possible for the company would be R$2.7 billion taking the highest share value as the basis, as the primary offering is always 90.05 million shares. The enlarged lots would all be owned by selling shareholder Goldman Sachs, whose managed funds have controlled Oncoclínicas since a capitalization in 2017.

In the worst-case scenario of the stated terms, Goldman Sachs would raise some R$1 billion with the base offering (at the floor of the values presented). This involves securing half of what was invested in the past. In 2017, the institution’s funds took control after an injection of around R$2 billion.

Before the offering, Goldman controls 93.5% of the company’s shares. Were it to sell the extra lots and increase the total amount collected, its stake would still be the majority, a little over 51%.

The suggested prices for the shares indicate that Oncoclínicas may start its trading on B3 in a comfortable position, valued between R$11 billion and R$15 billion. The company is a case of rapid growth, a mix of organic investments and acquisitions. Founded in 2010, in Belo Horizonte, from a single facility the company currently operates 69 clinics spread across several states – of these, 17 were the result of acquisitions.

Goldman’s arrival accelerated growth: the company’s net revenue was R$667 million in 2016 and reached R$2.2 billion last year, considering fully consolidated purchases made during the year. Of this total, R$1.7 billion is from organic expansion, that is, opening new clinics through its own efforts.

Net accounting revenue in 2020 reached R$2.035 billion, with EBITDA (earnings before interest taxes depreciation and amortization) of R$312.6 million, a margin of 15.4%. This total only reflects completed transactions within the past year, proportionally.

Everything suggests that the growth rate should continue, because in the first three months of the year net revenue totaled R$614.55 million, which would raise the annual total to almost R$2.5 billion. EBITDA from January through March totaled R$106.6 million, representing a margin of more than 17%.

With large medical companies listed on the stock exchange, such as Rede D’Or, valued at over R$130 billion, as well as others such as Hapvida and Grupo NotreDame Intermédica (waiting for the go-ahead to merge their businesses), in addition to several smaller IPOs held in the first semester, the health sector is facing a certain investor overexposure.

There is less willingness for new companies than in sectors with few representatives in the market, or even new ones, as was the case of the gym chains mentioned above. Moreover, the more structured groups, whether independent or verticalized hospitals, are all seeking to expand cancer treatment-related services, which means competition from specialized players.

Source: Exame