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Financial Restructuring for a Dynamic Healthcare Sector

Floris Iking - Alvarez & Marsal
Managing Director
Home > Professional Services > View from the Top

Financial Restructuring for a Dynamic Healthcare Sector

Adriana Munoz - Alvarez & Marsal
Healthcare Executive Advisor


Mon, 09/28/2020 - 10:03

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Q: What makes Mexico an attractive country for healthcare and pharmaceutical companies?

AM: Mexico offers endless opportunities to companies and investors alike. The country’s demographics include a very young population and high rates of obesity and chronic illnesses, so it is possible for companies to have a real impact with innovative solutions for the country’s most pressing problems. For example, the public sector faces multiple challenges regarding access for the uninsured and under-insured population. Institutions such as IMSS are extremely fragmented and require patients to seek secondary care for treatments that they could easily get at a clinic, such as wound dressing. Partnerships and alliances among public sector institutions can have a great impact on the delivery of care.

Another reason Mexico is an attractive market is that the country has a high out-of-pocket expenditure. Mexican patients, regardless of whether they have insurance or not, are accustomed to paying directly for their healthcare needs. If products and services can be made accessible not only in price but also in convenience, opportunities will abound in this market.

Q: How has the COVID-19 pandemic affected Mexico’s potential in the healthcare sector? What new market opportunities have arisen from the outbreak?

AM: The pandemic has led to major challenges in the healthcare system, from infrastructure to doctor-patient ratios, which were already low for a market the size of Mexico. Organizations with traditional business models, such as distributors of medical devices or logistics partners, will be impacted by the budget constraints the public sector is facing, leading to concessions being made in the quality of products and services. We now see opportunities for nonhealthcare companies to play a larger role in the future of healthcare. For example, tech companies like Amazon have a great opportunity to make an impact through the implementation of delivery solutions through their multiple platforms. Strategic partnerships between life sciences companies and the tech industry will be key to growth in the post-pandemic world. We also know that payment delays to suppliers from public institutions has forced several domestic companies to make tough decisions, such as taking on debt, layoffs and even declaring bankruptcy.

FI: Considering the market contraction and the liquidity crunch at many companies, businesses that have healthier balance sheets will find many opportunities for consolidation or distressed acquisitions. Companies facing liquidity issues or early contract terminations can be acquired by those with greater liquidity, access to additional equity or debt financing. There is also potential in licensing opportunities where companies that perform contract manufacturing transfer those rights to other manufacturing facilities. This will be an opportunity for companies that have excess capacity.

The COVID-19 pandemic has caused setbacks related to discretional medical activities and a recession-induced contraction in healthcare. Moreover, it has led to an increase in expenditure in personal protective equipment and cleaning supplies. Under these circumstances, companies could benefit from working capital and other financing alternatives.

Q: How have recent policy changes regarding the acquisition of medications impacted the industries you work with?

AM: The most recent changes to the Ley de Adquisiciones, Arrendamiento y Servicios del Sector Público (Public Sector’s Law of Acquisitions, Leasing and Services) left many manufacturers in a precarious position. Previously, purchases made by the public sector began with a market study that gave local companies a competitive advantage through a point system that recognized local content. This model also benefited manufacturers from countries that have trade agreements with Mexico. That model made open public international tenders the last resort to acquire medications.

The recent amendment to the law allows the public sector to make the United Nations Office for Project Services (UNOPS) its first option. Moreover, during the last annual consolidated tender, several companies manufactured and imported inventory that ultimately was not purchased by the public sector; more than 50 percent of the bids were declared deserted, meaning that there was no interested supplier for that product or service. This can occur when there is a misalignment between the public sector and the industry.

The lack of formality regarding the new acquisition law has led companies to reassess their efforts in Mexico. If the company’s revenue was highly dependent on the public sector, it must diversify into the private sector or the international market. Organizations need to leverage their public sector and market access knowledge and seek opportunities to offer new services to public institutions if they choose to keep doing business with the government.

Q: What repercussions do you expect from the incorporation of previously independent administrative units into the Ministry of Health?

AM: The incorporation of various administrative units into the Ministry of Health will inevitably create much uncertainty, not only for the healthcare industry but also for the consumer. The once decentralized COFEPRIS will lose autonomy and delays in authorizations and reauthorizations are to be expected due to the administrative and bureaucratic processes they will have to undertake, further increasing approval periods that already exceeded the permitted time frames. We can also foresee possible conflicts of interest as some procurement offices of pharmaceuticals and medical devices will operate under the same subministries as COFEPRIS. Under these circumstances, companies will need to strengthen their regulatory affairs and public policy teams.

Q: How does A&M approach operational turnaround and financial restructuring assignments with its clients? 

FI: A&M is an international multidimensional management consulting firm. We are extremely active in healthcare, particularly in the US and Mexico. Our approach to operational turnaround and financial restructuring in the healthcare market goes back to the core values of the firm: objectivity, integrity and quality. As a firm, we do not come to the table with preconceived ideas of what the solution will be for a company. We do not shoot from the hip; we build a bottom-up analytical and data-driven approach, working with our clients to generate a fact-based solution. When we begin working with a new client, we perform a situational diagnostic to identify problems.

Our main differentiator from our competitors is our interest in implementing changes instead of just providing a diagnosis. We estimate required investment, the returns and the timeline to see the results of our recommendations and guide the client throughout the entire implementation.

Given today’s marketplace, we have to take risks with our clients. Three years ago, companies were able to undertake discretional projects but now that liquidity is tight, we have to invest our time and fees alongside the client. We are confident that if the client is transparent with us, we will identify opportunities for success.

Q: What technological tools can support healthcare companies during this complicated period?

AM: Organizations with some degree of digitalization are better prepared to take advantage of this changing environment. Tools such as a customer relationship management (CRM), enterprise resource planning (ERP) or business and analytics software are essential in today’s environment. Having streamlined processes, commercial and operational excellence and a culture of execution will be a game-changer for Mexican clients.

The “new normal” will require the implementation of a CRM and other types of software. Major companies already have incorporated software of this nature but most companies have not used it to its utmost capabilities. Having information readily available allows managers to use time efficiently. The information that a CRM and similar platforms provide will be essential to increasing the efficiency of sales teams.

Q: What are A&M’s short-term goals in Mexico regarding healthcare?

AM: We have a robust healthcare vertical and we will focus on supporting our clients. We have the clinical, operational and financial expertise to be trusted advisers for domestic and international companies that seek support in navigating this dynamic market. We judiciously assist companies in managing their resources so they have strong financial returns and can reinvest. We also advise our clients on how to navigate this highly specialized industry and seize opportunities that perhaps were not apparent to investors.

FI: We underwent a rapid expansion last year with the addition of two new corporate improvement partners. In Mexico, we have six management directors: two in performance improvement, one in corporate finance, one in transactional advisory services, one in tax advisory and one in restructuring.



Alvarez & Marsal (A&M) is a global professional services firm that provides advisory, business performance improvement and turnaround management services

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