In 2016, Genesis Care, Australia’s largest provider of cancer and cardiac care, underwent a transformative acquisition. A consortium of investors, led by China Resources Group and Macquarie Capital, acquired the company for a staggering $1.7 billion. This acquisition granted the consortium a majority stake of between 50% and 74% in Genesis Care, propelling the company into a new era of growth and global expansion.
Driven by a strategic vision, the consortium aimed to expand Genesis Care’s operations in the United States and Europe while tapping into the vast potential of the Chinese healthcare market. China Resources Group, a state-owned conglomerate with interests in various sectors, including healthcare, saw Genesis Care as an opportunity to deliver high-quality cancer and cardiac services to Chinese patients. Simultaneously, Macquarie Capital recognized Genesis Care as an attractive investment opportunity with strong growth prospects and a proven track record.
To support Genesis Care’s expansion plans, the consortium committed an additional $300 million over three years. Already present in the UK and Spain, where it operated 22 cancer centers with five more under development, Genesis Care aimed to increase its market share in these regions while venturing into new markets such as Germany and France.
The Game-Changing Acquisition and Operational Challenges
As part of its ambitious growth strategy, the consortium made a significant move by acquiring 21st Century Oncology, a major US integrated cancer care provider. This acquisition, valued at $1.1 billion, added 143 treatment centers across 17 states to Genesis Care’s portfolio. It not only provided access to the largest oncology market in the world but also served as a platform to introduce innovative models of care to US patients.
However, with expansion came challenges. Genesis Care faced a heavy debt load of $2.3 billion, leading to increased leverage and interest costs. The company encountered operational difficulties in integrating its acquisitions, particularly in the US, where it grappled with billing issues and the recovery of funds from insurers.
Moreover, the COVID-19 pandemic exacerbated Genesis Care’s woes as treatment volumes declined due to lockdowns and social distancing measures. These factors contributed to a deterioration in the company’s earnings and widened losses over the past two years. By June 2021, Genesis Care’s net leverage ratio reached an alarming level of nearly 20 times earnings, raising concerns among lenders about its ability to repay debts.
Addressing Financial Difficulties and Regulatory Uncertainty
To address these financial concerns, KKR and China Resources injected an additional $160 million into Genesis Care in June 2021, aiming to stabilize its balance sheet and buy time for recovery. Additionally, the company decided to sell its Australian cardiology business, Cardiology Co, to domestic private equity firm Adamantum Capital for approximately $300 million. This strategic move allowed Genesis Care to refocus on its core oncology services and alleviate its debt burden.
Despite these measures, the path to financial stability remains challenging. Genesis Care’s performance and profitability need significant improvements. Moreover, the company faces regulatory uncertainty, as the acquisition by China Resources Group is subject to approval by the foreign investment review board (FIRB), which may impose conditions or reject the deal due to national security or public interest concerns.
A Critical Juncture and the Future Ahead
In conclusion, Genesis Care’s acquisition by China Resources Group and Macquarie Capital in 2016 presented a bold vision for expanding operations in the US and Europe while entering the Chinese healthcare market. However, the expansion strategy brought financial burdens and operational complexities. The impact of the COVID-19 pandemic further exacerbated the company’s challenges.
As Genesis Care explores various funding options and considers a separation of its Australian and US divisions under Chapter 11 protection, the future of the company hangs in the balance. The outcome of this process will determine its ability to deliver cancer care services globally and navigate the intricate landscape of the healthcare sector. With patients, employees, doctors, suppliers, and investors all affected, Genesis Care’s journey represents a critical juncture in its mission to provide world-class cancer care.
