China's largest privately-owned investment company Fosun International has acquired Portuguese healthcare provider Espirito Santo Saude for €459.8 million ($587 million), extending its buying spree.
The deal for about 96% of Espirito Santo Saude's voting rights comes as Chinese buyers seek to increase their exposure to Europe. Sino-European outbound transactions totaled $13.8 billion in the first half of 2014, more than double the $5 billion chalked up in the previous year, according to a recent ING slide presentation.
In January Fosun bought assets from Portugal’s largest insurer for €1 billion. Other examples include Cofco's acquisition of a 51% stake in Dutch commodities trader Nidera and Dongfeng Motor's acquisition of a 28% stake in French motor company Peugeot.
Fosun was founded in 1992 by chairman Guo Guangchang, CEO Liang Xinjun, and two other university classmates with the $4,000 that Guo had saved for further study in the US. It has since grown rapidly thanks to an ambitious acquisition strategy.
Majority shareholder Rioforte Investments agreed to sell its 51% stake in Espirito Santo Saude after Fosun raised its offer price from €4.82 to €5.01 on October 9. The Hong Kong-listed company outbid rivals that included UnitedHealth Group, Mexico's Grupo Angeles Servicios de Salud and Portugal’s Jose de Mello Saude.
However, rising debt levels at Fosun have been a concern and S&P downgraded the company in April to BB from BB+. Fosun's share price fell 3.3% to close at HK$8.64 on Thursday after the company announced the deal.
"The company's leverage is high," Matthew Kong, an analyst at S&P, told FinanceAsia. "They need to reduce leverage if they want to support [a] strong rating," he said.
Fosun's reasoning
Fosun is seeking to emulate Warren Buffett, who has used premiums generated by Berkshire Hathaway's insurance operations to finance investments. It is acquiring Espirito Santo Saude's shares through Fidelidade, the Portuguese insurer it bought earlier this year.
"The Portuguese company has [a] relatively low return on investment. Fosun wants to enhance that... to improve [the] return on investment," S&P's Kong said.
According to one banker not involved in the deal, Fosun could also be looking to gain further expertise in the healthcare sector given China's moves to open its hospital sector to private capital. Espirito Santo Saude owns hospitals and clinics across Portugal.
The acquisition of Espirito Santo Saude comes after a busy few months for Fosun. In July Fosun bought a 23% stake in German tailor Tom Tailor, and the following month it acquired a 20% stake in US insurer Ironshore for $463 million.
In September, the company bought a 0.6% stake in Sinopec Sales, the retail arm of Chinese oil and gas giant Sinopec for Rmb2.1 billion ($342 million).
