Czech private investors, together with giant U.S.-based investment fund Oaktree Capital are helping to expand international healthcare network Nextclinics, which is focused on assisted reproduction. “We’d like to become the largest chain of clinics in Europe during this year. And if everything turns out ok, then we’d like to be the biggest in the world by the end of next year,” said group founder Miroslav Herden. He also told us the group plans more acquisitions and how to square the circle of joining the Chinese market without entering Chinese territory.
E15: Your business card reads Miroslaw, not Miroslav. Why is that?
I have dual citizenship: German and Czech. And because I’m a German taxpayer with residency in Germany, I put what is on my German documents on my business cards. I’m not employed in the Czech Republic at the moment.
E15: How did you end up in Germany?
When they told me in 1986 that I would have to wait 22 years for an apartment in Prague 8, I packed up the family and we bought a holiday to Yugoslavia through Autoturist. That was the easiest way to emigrate at the time.
E15: That was at the last minute. You didn’t believe things would change?
Honestly, I didn’t see much space for change in Czechoslovakia even in 1989. I thought that the Hungarians and Poles were certain, but the Czechs wouldn’t move. Regardless, I’m convinced that even in September 1989 no one in Czechoslovakia thought things would change so quickly.
E15: Did you want to return after that?
I never really fully returned. In 1998, I left my employment and went into business for myself. I started building my own start-ups and the better environment for that was in the Czech Republic at the time, so I’ve partially been back since 1998.
E15: What did you do in Germany?
I had a degree from the University of Chemistry and Technology, Prague so at first I was employed at a research centre owned by cosmetics maker Beiersdorf. After two years, I wanted a change and I joined the sales department at Kone Instruments, which makes medical equipment and supplies laboratories with biochemical and haematological analysis machines. I stayed there until 1998 when I left for the Czech Republic and founded two companies. One supplied sets to laboratories. The other developed and provided IT services, software, and the like. They are still around today.
E15: So you’re a chemist with a passion for medicine?
I originally wanted to study medicine in Czechoslovakia, specifically dentistry, but the doors to this field were closed to me because my father was expelled from the (Communist) Party after 1968 for protests on the wrong side of the barricade and my mother had never been a member. So I passed the entrance exams, but it was recommended that I go to the University of Chemistry. But I don’t regret my studies. That education taught me a great deal of logical thinking and I learned to be strict with myself.
E15: When did you go from building start-ups to big business?
The founding of Synlab, a firm focused on laboratory examination services, was a big thing. At first I was the sole owner. When the investor joined I exchanged ownership for shares in the new holding that I then gradually sold off before completely divesting myself in 2015. I only remained on the board where I was responsible for IT and innovation. I was also the executive in Slovakia and the Czech Republic. I definitively left Synlab at the end of 2017.
E15: Because it wasn’t your company anymore?
I’ll be honest and say I don’t like being a caretaker. I enjoy building. At the same time, my work could no longer be combined with NextClinics, which we ran in parallel with Synlab for a year and a half. There started to be so much work that I couldn’t manage and I had no private life left. So I left to focus solely on NextClinics.
E15: Was it always your strategy to build the company, develop it, and then sell it off?
I never thought too much about selling. My former boss and current friend at Kone Instruments would say that if you do your job well, the money will always come. I was never an investment banker that at the beginning calculates how much to invest and if six defined things happen, then I’ll make such-and-such amount of money. Maybe I could have made more in the end this way, but I need to enjoy the work. When I don’t, then no amount in the world will convince me to do something. On top of that, I lead a rather humble personal life. Yes, I can afford many things that most people cannot, but I’m not splurging on yachts or expensive cars. When I finally broke down and bought a Ferrari, I quickly sold it after I discovered the maintenance costs.
E15: I ask because of the future of NextClinics, especially when you’ve got such a strong investor in Oaktree Capital.
We have Oaktree in the group for several reasons. First of all, they came to us, so the original position was very favourable. The second thing is that we were able to build a strong team that had extensive experience in building an international corporation from Synlab. Furthermore, we were not completely dependent on receiving money from Oaktree. On the other hand, we openly say we’re happy to have them in our company. It improves a business’s image when you have one of the largest investment funds in the world as part of your project. I had never worked with such a large investment fund before. The funds that were in Synlab were middle class. This is a huge body that makes demands. The entire process of building the corporation is under a microscope, which improves the environment in the firm and certainly isn’t negative.
E15: How strong is Oaktree Capital’s position in NextClinics?
They contributed 64% of the capital invested and they have 50% of the voting rights.
E15: According to existing contracts, can Oaktree control all of NextClinics in the end?
No. They can have up to 80%-90% of the invested funds, but they will have only 50% of the voting rights. I myself am curious to see what will happen in the end. The task at hand now is to consolidate everything so it all works with an umbrella of services for customers on a global level.
E15: What happens after that?
No one is considering selling shares on the stock market. I don’t think the market is the right place for healthcare facilities. I experienced preparations for it at Synlab. It’s very costly and challenging in terms of organization. The market is best for clearly defined products where the services offered have a common denominator. That’s not the case in healthcare. Assisted reproduction simply has to be different in Prague than in Madrid, Milan, or Lugano. A chain that provides private healthcare services could become a strategic partner.
E15: When will it be time to sell?
We have some plans for how the company’s valuation should develop. We can start to look for an investor in five or six years. It could be one of us, or it could be someone from the outside.
E15: What valuation are your targeting for the group?
An interesting one, but you won’t get a number out of me right now.
E15: Then can you at least disclose the targeted revenue and profit figures?
I would like to have around half a billion euro in revenue in three years. EBITDA should be somewhere between 20%-30%. We’re pretty far off this right now.
E15: How many partners does NextClinics have at the moment?
There are legal entities owned by friends and family. We can all fit at a single table. There are five entities that vote on the future of the company. Then there are partners without voting rights. We focus on buying targets that have a vision for the future, believe in our project, and are prepared to invest 30% or more. These people then become partners without voting rights. I don’t need to buy a slew of branches all over Europe and turn motivated partners into less-motivated employees. When a doctor doesn’t want to do something, nothing will change that. We spent the last six months crisscrossing Canada and the United States, holding meetings at 38 centres. In the end there were only three that were a fit personally, in terms of the investment, and their direction. We don’t pounce at everything that’s on the market. We want to have motivated people in the group. If you believe in the project, then we can agree on an interesting price, but we want you to re-invest a third.
E15: How much of the money that you have comes from the Czech Republic?
We put 50 million euro of private capital into NextClinics and about 40 of that is from the Czech environment.
E15: Who are your Czech investors?
My family fond is one and I can’t talk about the others, but they are all founding fathers with voting rights.
E15: What are your plans for NextClinics?
We’re building identical hotspots in Prague and Madrid and we’re looking into doing something similar in Milan so we have three such location across Europe. We’d like to become the largest chain of clinics in Europe during this year. And if everything turns out ok, then we’d like to be the biggest in the world by the end of next year. It’s not just about reproduction clinics. They are a necessary part of what we do, but not the only thing. We are not building a network of fertility clinics, but lifestyle medicine. We are trying to get people to live better and more comfortable lives.
E15: What can you offer besides assisted reproduction?
Our product is defined by assisted reproduction, but our goal is to create what you would call a one-stop shop. We also want to offer clients other services they need, such as immunology, allergology, and they also often need plastic surgery. That will all be included in the healthcare hotspot we are building in Prague-Smíchov. All health services will be offered in the same place and the patient will be able to use them. Right now, about 35%-40% of our clients in Prague are foreigners. If someone comes from abroad, then using other services is more than easy. We also have specialized laboratories and we’d like to focus globally on genetics.
E15: Genetics is also a good business?
A genetic laboratory is one of the last areas of laboratory medicine that is developing dynamically. It plays a huge role in medicine as it can see a bit into the future, so it can suggest what will happen. All other medical results show what happened, but genetics tells you what will happen on the basis of the human genome: what you’re susceptible to, how to live, etc. Assisted reproduction is an ideal gateway to this type of predictive medicine.
E15: Why is assisted reproduction experiencing a boom?
We were recently talking with a clinic in Spain. They need to test 12-15 young men to get a single healthy sperm sample. That’s worrying. It shows the incredible destruction wrought on the human organism by the environment. Today, 25%-30% of people are born because of facilities like ours. This is not just artificial insemination, but other forms of care as well.
E15: Do societal changes play a role as well?
Definitely. A woman’s ability to conceive drops after the age of 35. The population is aging and you have this massive influence from the environment. You also have to consider that women study and have careers, and they don’t have their first child at 16 like they used to, but ideally by the age of 30. And if a woman gets a degree and wants to have two-three years of work so she has something to come back to, then we’re over 30. You can’t blame anyone for that problem. Wealthier groups are having children later. That’s the most important factor.
E15: What criteria do you use to decide on a specific investment?
The key is whether the acquisition target has a strategic plan for the next five years. Healthcare is a very sensitive area and if you satisfy yourself with just providing a service, but you have no plan on how to develop, how to improve quality, implement innovation, how to improve services, then it’s not for us. If we don’t see that in an acquisition target, then we leave and don’t ask any further questions. The other significant factor is location. When you can see the lake from all the rooms in the clinic in Lugano, then you are willing to pay more. The same is true in Prague. You can see Vyšehrad from one side and Prague Castle from the other.
E15: And what about specific indicators, like profitability?
We have investment criteria, but it’s never about the target having such-and-such revenue and such-and-such profit. We bought a firm with zero EBITDA and another with 30% EBITDA. Both matched what the partners wanted and what we wanted. Finding money isn’t the hardest task today if you have a solid investment plan. The hardest thing is to find a motivated acquisition target that is a real investment and not just spending.
E15: What acquisition targets are you working on?
The acquisition of Professor Zech’s clinics was very important for us. That made us one of the dominant players in the space between Northern Italy through Switzerland, Austria, part of Germany, to the Czech Republic. A comparable package of investments should be signed by the end of the year, mostly related to the German market where we haven’t advanced as much as we had hoped we would have. But if you’re looking for the right partner, then there’s no reason to rush things. It’s better to wait and agree to better conditions. Despite that, I think we will invest 80-90 million euro by the end of the year.
E15: Where will you buy?
In Spain, we are working hard to acquire a group of people that administer biological material. That means that they have a sperm bank, for example, and they have set processes and controls. Biological material is beginning to become scarce. One of the acquisition targets we are currently evaluating, for example, is in Andalusia.
E15: Will there also be acquisitions on the domestic market?
We currently have 46 Czech offices and specialized laboratories. It can be said we have almost everything in the Czech Republic.
E15: You mentioned that you’ve spent time in North America recently. Are you preparing something there?
We are dealing with investments into three reproduction clinics in Toronto, Washington, and Chicago. The unit there will have to be able to operate independently, including management. We want our American partners to reinvest and fill all the top managerial roles. You can’t manage an American company from Europe and it certainly can’t be led by Europeans. It will thus be about implementing cross-sales to the greatest extent possible. We do some things better in Europe, or the same, or for much less money. On top of that, without the U.S. you cannot provide quality services for the Asian community, which can potentially become a massive market, unless you want to directly invest in China; something I would like to avoid for now.
E15: You can deal with Chinese reproductive problems from the U.S.?
There are large Asian-American communities in the U.S., which means that you will find the necessary biological material if you open a sperm bank. Those communities aren’t in Europe. Expansion to the U.S. and Canada means we can tap at least a portion of the huge potential Chinese clients represent. It’s now allowed to have a second child in China and according to the latest reports, a third child will be permitted in the near future. Parents also often prefer girls because of tax breaks. There is a large gender imbalance in China, which is why girls are subsidized. In other words, there is pressure before birth for services that determine gender. That is a completely different service than someone who cannot conceive. It’s associated with genetics, which is why we want a genetic laboratory there.
E15: So when will you acquire something in the U.S. or Canada?
Although our targets in North America are clear, we’ll see how it works out. It also depends on how talks with American lawyers turn out. It’s a bit of a different world and different law. It’s not some easy adventure. I would like things to go quickly in the U.S., because time is short. Whoever builds their structure there first will be the first to be globally competitive.
E15: How much time do acquisition negotiations take up?
For example, Professor Marco Filicori’s clinics in Bologna, Italy took five weeks from first contact to signing the deal. He was waiting for the offer. He had been monitoring us and when we came, he said, with a bit of exaggeration, “You’re finally here.” If there are no obstacles and the partner is prepared to reinvest, then the acquisition risk is reduced as well. Despite all detailed audits and legal analyses, there can still be a skeleton in the closet.
E15: Is your business somehow affected by one of the largest competitors being part of Czech Prime Minister Andrej Babiš’s trust fund?
We don’t compete that much. They are the biggest in the Czech Republic, while we’re rather small domestically. We don’t compete on the German market, and we’re not in Ireland or England.
E15: Are you also monitoring the situation in the rest of the Czech healthcare sector?
I still believe that Czech healthcare has expert physicians. I still think that there are many exceptional centres in the Czech Republic. The problem is the insurance law from the 1990s, which was never really completed. It never gave insurers the option to effectively manage preventive medicine. Having top-notch heart surgeons or orthopaedic centres is important when something happens, but basic care on the level of general practitioners should be infused with a spirit of prevention and the entire environment should be improved. Everyone is scared of that and no one has taken it on. Someone has to say what is part of basic insurance and what is extra. Nothing will probably happen until there is a non-political body that distributes revenue into individual healthcare sectors. Right now, everyone is angry as it erodes from within, which plays into our hands as private investors. It’s much easier to attract a doctor from this deteriorating environment. They may even accept less money because they are entering an organized structure where they know what they have to do and what they will be paid for. That is often much more important to them.
E15: Does NextClinics cooperate with insurers?
You’re either dependent on payments from health insurers or from private individuals. We have it at about half and half. Professor Zech, who we bought, has a clinic in Plzeň that doesn’t have any contracts with insurers and runs on a strictly private basis. That’s why I left Synlab: So I could be in a field where I wouldn’t fear obstacles from insurers. I’m happy that we’re relatively independent. I don’t want it to come out the wrong way. We don’t avoid contracts with health insurers, but it becomes easier to breathe economically as you gradually become less dependent on them.
E15: How does this independence from insurers manifest itself?
Because we don’t care for sick patients, they can travel and even fly to see us. Moreover, genetic samples from clients who pay their own way can travel around the world. If you extract a genetic sample in the Czech Republic paid for by an insurer, then it can only be analysed in the Czech Republic. And when you have a throng of these private clients, you can buy the most expensive equipment and hire the best people. Therefore, genetics is a major project and we are prepared to invest significant funds and emotional capital into it.
Miroslav Herden (56)
Mr. Herden graduated from the University of Chemistry and Technology, Prague. He worked for German companies Beiersdorf and Kone Instruments after emigrating to Germany in 1986. He has been active in the Czech Republic since 1998 and he helped found laboratory group Synlab. After selling his stake, he has focused on building the NextClinics network of healthcare facilities.
Zurück zur Übersicht