Consolidating the Growing European Lab Market

Strategies for Staying Ahead in a Growing Market

Martin Lindner |  23.11.2016

Experts anticipate numerous mergers and acquisitions among private laboratory operators in the coming years. Besides acquiring additional capacities, however, internal consolidation and process optimization are also crucial to a company’s success, as the example of Unilabs shows.


Management Summary

Challenge: The highly fragmented European lab market will continue to grow and will offer numerous possibilities for consolidation. Prices will remain stable or decline, but this will be counterbalanced by a combination of rising volumes and consistent process optimization.

Solution: Expanding, international laboratory chains can easily adapt to the trend toward automation and can become more independent from changing regulatory requirements in the various countries. As the Unilabs example shows, two keys to success lie in bundled and lean processes, and in an inspiring corporate culture.

Results: After introducing more efficient workflows, Unilabs has significantly improved its EBITDA since mid-2014, with growth of almost 25% in Q4 2015.
 


Growth Despite Falling Prices
The private European lab market will continue to grow in the coming years, despite continued price pressure, and will be characterized by various mergers and acquisitions. This forecast was offered by experts in London during the Healthcare Business International 2016 conference in late April.1 Hedley Goldberg, Managing Director at the financial advisory firm Rothschild, said that the industry should expect compound annual growth rates averaging approximately 2% for lab services up to 2020.2 This assessment is based on analyses for Germany, France, Italy, Spain, Switzerland, Sweden, Norway, and Portugal, which show that the developed European lab market has low, but constant growth that is independent of economic cycles.


For example, Goldberg said that the average prices for lab tests may continue to fall in Germany, France, Spain, and Italy, but this will be more than offset by the increased output volume. In particular, the aging societies and the increasing importance of preventative medicine and therapeutic monitoring could lead to more diagnostic services. In some countries, such as Germany and Switzerland, lab-test outsourcing will probably increase further and offer growth opportunities for private service providers.

Investment Opportunities in a Fragmented Sector
Also characteristic of the European supplier landscape is a high level of fragmentation. According to Goldberg, in a number of countries, four or five leading laboratory operators have a market share of 30 to 40%, while the rest of the market in each country is shared by hundreds or even thousands of small and medium-sized laboratories. Sweden and Norway are the only countries in which the top players have divided the business almost completely among themselves.


The trend toward laboratory automation and high regulatory requirements in the healthcare market clearly favors larger corporate groups. Internationally active laboratory chains can operate in national markets regardless of variable regulatory conditions and can minimize risk. In addition, large laboratory operators with high capacity outputs can often save money through material purchases, synergies in staffing, and by using equipment more efficiently. All of this should drive the consolidation of the lab market in the coming years and encourage investments of private capital.

Performance Improvement Plan
The example of Unilabs shows that a company’s success does not depend on the acquisition of additional capacity alone. The company, which was founded in 1987 and has its headquarters in Geneva, Switzerland, currently runs more than 110 labs in 10 European countries and performs approximately 110 million medical analyses a year.3 At the London conference, Unilabs COO Michiel Boehmer explained that the introduction of a Performance Improvement Plan was critical to the company’s recent positive development.


Boehmer pointed out that the company’s EBITDA has improved significantly since mid-2014, ramping up to over 20% growth per quarter since Q1 2015. Remarkably, sales have increased at a substantially higher rate than the market – namely, double the market growth rate. At the same time, the number of employees has remained stable, which is one of the biggest EBITDA growth drivers in the labor-intensive field of laboratory medicine.4 

 

"Managers talk strategy, leaders tell stories.” Michiel Boehmer, COO at Unilabs

“Lean Production” as a Model for Success
“Many of the insights gained from industrial production can be applied to laboratory medicine,” said Boehmer, who pursues, among other things, the ideal of “lean production.” Work processes should be paperless and as simple as possible, supply chains should be short, and IT systems should be activated and less complex. Routine tests should be bundled and processed in core labs, and automated analysis systems should be working to capacity around the clock – instead of by the hour. Additionally, in order to consolidate a corporate group, it is essential to harmonize machinery, IT environments, and operating processes, and to consistently increase medical quality standards.


Boehmer stressed that all of this can only be achieved with motivated employees. The top executives in a company should therefore not just be accessible and present in the lab rather than in meeting rooms – they should also lead by example and earn the right to lead their colleagues. Business leaders must be able to inspire all colleagues to work toward their vision, and to use the world as a stage on which storytelling is the way to manage a company to achieve operational excellence. “Managers talk strategy, leaders tell stories,” said Boehmer.


About the Author

Martin Lindner is an award-winning science writer based in Berlin, Germany. After his medical studies and a doctoral thesis on the history of medicine, he went into journalism. His articles have appeared in many major German and Swiss newspapers and magazines.


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1www.healthcarebusinessinternational.com/conference/2016-breaking-barriers (accessed 10 May 2016)

2Hedley Goldberg: The European lab sector – Operational and M&A trends. Presentation at the Healthcare Business International 2016 Conference, London, 25–27 April 2016

3www.unilabs.com/company/glance/Pages/default.aspx (accessed 11 May 2016)

4Michiel Boehmer: Manufacturing success at Unilabs. Presentation at the Healthcare Business International 2016 Conference, London, 25–27 April 2016 (www.healthcarebusinessinternational.com/hbi2016; accessed 2 May 2016)

The statements by Siemens’ customers described herein are based on results that were achieved in the customer's unique setting. Since there is no "typical" hospital and many variables exist (e.g., hospital size, case mix, level of IT adoption) there can be no guarantee that other customers will achieve the same results.