Hapvida, Brazil’s largest HMO, deals set to sell assets

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The shares of Brazil’s largest HMO Hapvida plummeted last week, dropping 43.6 percent and losing over BRL 13 billion (USD 2.5 billion) in market value, after the company posted disappointing 2022 Q4 earnings.

The Q4 report showed a consolidated quarterly net loss of over BRL 316 million, reversing the BRL 200.2 million profit reported in the same period of 2021. 

Price readjustments have not been enough to offset the upward trend in Hapvida’s medical loss ratio (72.9 percent in Q4) — a challenge faced by most companies in the industry. As the largest HMO in the country, however, Hapvida is directly affected by the sector’s changing environment. 

Early in 2021, Hapvida announced a merger with Notre Dame Intermédica, creating the industry’s largest company in Brazil, with 16 million beneficiaries and around 20 percent of market share.

Such M&A operations reflect a recent consolidation movement, with companies in the supplementary healthcare sector seeking to experiment with new business fronts and verticalize their operations. 

The growth driven by the Covid pandemic, when having a health plan seemed more fundamental than ever, and the macroeconomic conditions accompanying it, such as low interest rates, also contributed to these deals.

Now, with a slowdown in economic activity and a high benchmark interest rate contributing to an increase in operating costs, companies in the sector are having difficulties integrating the assets they purchased.

In February, Hapvida announced that it will issue USD 144.3 million in non-convertible debentures maturing in 2024. The idea is to attract professional investors (with over USD 1.9 million in assets) willing to help the company finance its latest acquisitions. 

This week, Valor Econômico newspaper reported that the company is also planning to put two non-strategic assets up for sale to reduce structure and, consequently, costs. These are Resgate São Francisco, a company that transports patients, and the health technology company Maida. BTG Pactual is the bank advising the company on both transactions.

The company’s general goals have not changed; it continues to pursue further verticalization and a lower medical loss ratio.Even with the fall of share prices in the last week and the challenging environment for the supplemental health sector, analysts at leading investment houses are recommending Hapvida as a “buy.”

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