Old Mutual Healthcare’s black economic empowerment (BEE) deal with Kwacha announced this week is about improving their equity standings before they bid on the government’s civil service medical aid scheme, say analysts.
Pat Sidley, spokesperson for the Medical Schemes Council, described the deal as ”part of the mad scrambling to get BEE administration companies in place” to tender for the government medical aid scheme. Old Mutual acknowledge that the deal will improve its chances for the government tender, but says the merger is about positioning Old Mutual to provide low-income earners with more medical aid options.
MD of Old Mutual Healthcare, Thabiso Buku, says the deal will create the fourth-largest medical aid provider in the country with 245 000 members.
The deal will see Old Mutual acquire 100% of Sizwe Medical Service (SMS) and 90% of Cheiron Health Technologies, both owned by Kwacha, in exchange for a 26% equity stake in Old Mutual Healthcare and an unspecified cash payment to Kwacha’s shareholders.
The deal, alongside the R7,2-billion group BEE transaction announced in April this year, will see Old Mutual Healthcare’s black ownership equity rise to 36%, exceeding the 2010 black ownership requirement of 35% laid out in the draft healthcare sector charter, which was published for comment in July.
Even as separate entities, Old Mutual Healthcare and Kwacha already exceed the 2014 employment equity targets proposed in the charter of 70% black staff and 60% women. This places them in a strong position to bid for the government tender.
Roddy Sparks, MD of Old Mutual South Africa, said Sizwe was a strong brand and the medical aid scheme had a membership base of 55 000 making it the largest black-owned administrator in the country.
”Up until now we have been anchored in the upper-end of the market and with the growth set to be in the middle and emerging lower end of the market, we wanted to make sure we were well positioned in this area,” said Sparks.
Buku said Sizwe had already made inroads into the middle to lower end of the market and currently 65% of their membership base fell in this sector. He said benefit schemes to be launched next year were currently being devised and there would be more options from Old Mutual Healthcare for the lower income earner from January next year.
But analysts have questioned Old Mutual’s ability to make a real impact on medical aid schemes for lower income earners.
BusinessMap Foundation director Reg Rumney says the deal would lessen competition by reducing the number of players and is an example of how a BEE charter can encourage something that is not desirable.
Rumney said that many industry players had tried to implement low-income medical aid schemes in the past with very little success and that he doubted that Old Mutual’s BEE deal would change anything in that sector.
”Some intervention from outside the industry will be required if medical aid is to be made accessible to the lower income sector,” said Rumney.
Buku agreed that some form of government intervention was required saying that low income medical aid schemes would be effective up to a point but without some form of intervention it could not be implemented on a broader scale.
Old Mutual believes that Kwacha will bring a strong management team, strong empowerment credentials and a needed strategic base in Gauteng to the table, while Kwacha have highlighted Old Mutual’s network of brokers and consultants and capital for investment as attractive features.