The Race: 9:33pm, June 24, 2018: From Nairobi, Dr Felix Wanjala texts on a work WhatsApp group: “Team, let’s ensure we don’t let the team down … let’s meet our target.”
Without context, this might appear like a harmless motivational speech from a boss to his subordinates. But here is the context: Dr Wanjala is the CEO of Nairobi Women’s Hospital (NWH). In the message immediately before that, he had forwarded a text listing the admission numbers across all the hospital’s branches in the country. “We have the numbers as follows at this hour,” the CEO wrote to his employees, and then listed admissions totalling 288 across the hospital group.
The target, and the context of the war cry not to let the rest of the team down, he went on, was to get 22 more admissions.
To do this, the CEO recommended that his team, based at the Nairobi Women’s Hospital Branch in Nakuru (called Nakuru Hyrax) should “start with looking for referrals”, not miss “any opportunity (to admit)”, and be “very vigilant in casualty”.
In multiple texts covering different days in 2018, the WhatsApp group resembles a trading floor, with Dr Wanjala and his Chief Operations Officer Eunice Munyingi pushing employees to work harder and increase admissions. On the first day of July, for example, Ms Munyingi wrote in response to the nurse in charge of the hospital chain: “Let us increase speed; two admissions against 13 discharges at this hour is not good.”
Two minutes later, the CEO added: “It’s our striking time. Let’s intensify our effort … replace all discharges by 6pm.” Five days later, at 7:28pm, the COO told the Nakuru branch staff to “get three admissions by 9pm”.
Interviews with whistle-blowers who shared the screenshots paint the picture of a corporate culture of being pushed to meet admission targets. “Although it was not said explicitly,” one former member of the NWH told this writer, “the implication was that doctors and nurses in particular had to find reasons to admit patients to meet the hourly and daily targets, even if those reasons were an absolute lie.”
Another added that there was a financial reward paid to clinical officers for each admission; and they had to write down why they were admitting each patient. This meant, several former staff members said, that they had to get creative to meet targets, both personal ones and those of their employer.
The Founder: Founded two decades ago by Dr Sam Thenya, a young gynaecologist, Nairobi Women’s Hospital began with a unique specialisation. The focus of its first branch, in Hurlingham, was solely obstetrics and gynaecology services, meaning its primary clients were women. It particularly became known for its Gender Violence Recovery Centre, a charitable arm that serves survivors of sexual and domestic violence.
“I was working in a hospital and I had pitched this idea to the CEO of that hospital, but he wasn’t very keen on the idea of taking in abused women for free,” the hospital’s founder told the Business Daily in November 2016. “One time he told me that if I thought the idea would work then I should go ahead and open my own hospital because it wasn’t going to work at that hospital, and right there I thought to myself, ‘Why not?"
So at 31, Dr Sam Thenya followed his boss’s advice.
What drove him to start the hospital when he had no money, he told the interviewer, was a “certain trigger, madness or passion”. That singular focus to his goal, despite challenges almost as soon as he started, built one of the most familiar, respected private hospitals in the capital city.
In 2003, the hospital’s banker, Daima Bank, collapsed. Dr Thenya, still in the early years of his project, heard the devastating news while refuelling his vehicle at a petrol station. “We had just issued suppliers’ cheques,” he said in the interview.
Despite other challenges, Dr Thenya and the hospital he built surged on. In a scenario that exemplifies the fine line between private healthcare as a business and a service, Dr Thenya had to fight with politicians, including President Uhuru Kenyatta, and technocrats who demanded the release of patients over bills.
Once, he told the interviewer, the President called him and told him someone had sent him an email lamenting that the body of his or her mother was being held hostage by NWH over unpaid bills. “Sam, what do we do?” the President asked. “Your Excellency, the bill has to be paid,” Dr Thenya answered.
After the President said he would pay the bill, and asked the body be released while he did it, Dr Thenya replied: “I need some proof of payment. If you want me to release it today, then pay today.”
By the time this was happening, a lot had changed. Dr Thenya had transformed from a practising gynaecologist to an entrepreneur as the hospital grew. He had also sold it, and was on his way out as the founding CEO.
Born in Nyakihai, Murang’a, in 1968, a much younger Sam Thenya had wanted to be a pilot. But he became a doctor instead. As a young doctor in training, he led a strike at Nyeri Provincial General Hospital in the early 1990s. The issue, which was fixed because of the strike, was bad work conditions for medical practitioners.
“I am not one who stands by and watches things deteriorate,” he told an interviewer in 2011.
What finally drove him to ask his boss to start a wing for victims of sexual violence, and doing it himself when he was challenged, was meeting the victim of a brutal gang rape. Battered, violated and in need of urgent medical care, she did not have money to pay for admission.
“I paid for her admission and closely monitored her progress.”
The Past: As a young doctor on a mission in the early 2000s, Dr Thenya was unstoppable in his mission to build Nairobi Women’s Hospital. In October 2000, a facility called Hurlingham Hospital was being auctioned off for unpaid debts. Dr Thenya approached the auctioneers with a promise to buy the hospital. It was an attractive deal for both sides: the auctioneers would get rid of an asset, and the young doctor would not have to start a hospital from scratch. But there was one problem, a big one. He had no money on him.
The most he could raise was half a million shillings, which he did by selling his wife’s car. He needed Sh17 million more, so he got other investors to put in the money and take a share of the repainted hospital’s ownership.
In the world of modern finance, this seemingly brilliant financing strategy has a name. It is called a leveraged buyout (LBO). It works exactly how Dr Thenya did it: You buy a company by taking in debt and giving up equity, which means you do not need a single coin to start whatever enterprise you want to start.
The most famous LBO in the world is the hostile takeover of American company RJR Nabisco. In 1989, the executives of the conglomerate, which sold tobacco and food, started an unstoppable process to acquire the entire company at $75 a share.
The events that followed that ignition are covered in Barbarians at the Gate: The Fall of RJR Nabisco, a book by two American journalists that later became a movie. It covers the executives’ plan to buy out other shareholders, and the marathon that began when other groups of people joined in on the sudden race to acquire one of the biggest companies in the world. One of them finally won, by offering a price higher, by $15, than the management team’s offer.
But the best part of this story is that none of them, even the executives who wanted to buy a company for $25 billion, actually had the money, and they didn’t need to.
The gist is to start what is called, in modern finance, a fundless fund. Simply, a corporate body that on the one hand promises to and negotiates to buy something, while asking for money from those who have it to complete the deal. For investors with vast amounts of money, this is an investment for which they expect to see profits.
Dr Thenya gave up 40 per cent of NWH’s ownership to the investors who gave him Sh50 million to buy the assets of Hurlingham Hospital and rebuild it anew as Nairobi Women’s Hospital. As the hospital grew, on the back of its reputation as a niche healthcare provider, Dr Thenya bought out the investors, and by the late 2000s, owned the entire thing.
In 2009, he acquired Masaba Hospital in Adams Arcade, and turned it into the second Nairobi Women’s Hospital branch. By the end of the next decade, there would be a total of nine branches of Nairobi Women’s Hospital: four in the capital city and the metropolis; two in Nakuru; and one each in Naivasha, Meru and Mombasa.
From a single hospital in Hurlingham, Nairobi Women’s Hospital was one of the fastest-growing hospital chains in Kenya by the mid-2010s. But things had changed. In the first decade, Dr Thenya had quit practising to concentrate on the business side of his hospital.
“I realised that I was not giving my patients full attention because I was often caught up in strategy meetings,” he said, “(so) I had to choose between expanding the hospital and practising.”
And in several transactions beginning in 2010, he had progressively sold his ownership stake in the hospital to the successor of leveraged buyouts in modern finance; a similar but differently named structure called a private equity fund.
The Present: A private equity (PE) firm is a leveraged buyout by any other name. Simply, you get money from wealthy individuals and organisations and invest it in attractive companies. Then you restructure the company by cutting costs and expanding as fast as possible, and then you sell the now bigger company for a profit.
The basis of this model of financing is to buy and sell, as opposed to keeping an investment in perpetuity. So PE firms strip their new companies of any sellable assets, change the management, reduce costs by firing professionals and employing cheaper labour, pay executives bonuses for meeting targets, and once the company is attractive enough on paper, sell it to someone else. That new buyer is often just another PE firm.
In the complicated structures of global commerce, private equity funds are used to finance rapid expansion, which increases the value of the assets. Investors, who include funds of funds — where one investment fund invests in another investment fund — expect a return on investment. And investment funds get money by promising exactly that.
PE funds make money in two ways: by charging an annual management fee of the money they have been trusted with, calculated as a percentage, and by taking a cut of the profits they make when they sell the companies they buy. So their primary motivation is to get more investor money, and to restructure companies as fast as possible to attract a higher price than they bought it for.