Doctor's orders: A case study in reputational risk

Visit our healthcare content hub here and read the first instalments of the series

KKR and Triton's investment in Swedish private care business Carema became the catalyst for significant change in the Nordic private equity industry after 2011, when the business came under fire from the media and government after accusations of neglect and patient mistreatment.

Once the focus eventually turned to the company's private equity owners, the media, government and public outcry created arguably the brightest spotlight ever shone on the industry until that point. While what eventually became known as "the Carema Scandal" affected many changes in private equity ESG policies and transparency, it also sparked debate about private investment in sectors providing services to the state-run healthcare system.

Carema was the driver of proposals by Swedish politicians about limiting the profits of private companies providing services in the public sector – though nothing materialised and the proposals eventually dissipated

Sweden has borne the brunt of the discussion, with critical media coverage of private equity investments in private hospitals operator Capio and care provider Attendo among others. Attendo, an IK Investment Partners portfolio company, was the subject of several accusatory articles by major Swedish newspaper Svenska Dagbladet throughout the GP's ownership and leading up to the company's eventual IPO in 2015.

Before the Carema Scandal, Nordic healthcare was a universally attractive play, due to lucrative government contracts virtually guaranteeing a certain level of income. Any GP that could improve efficiency and minimise costs would be off to a good start in eking out solid profits from a company providing services to the public healthcare system.

Post-Carema, the reputational risk increased substantially, as well as the political risk. Carema was the driver of proposals by Swedish politicians about limiting the profits of private companies providing services in the public sector – though nothing materialised and the proposals eventually dissipated.

Off life support
The troubles surrounding Carema put the industry off investing in the elderly care and disabled care industries for a few years, though the verticals since became attractive again for local GPs, as the consolidation play remained.

In the past two years, the fragmented sectors have seen substantial consolidation and the process is to some degree coming to the end of its cycle in Sweden, as companies are listed or sold to trade buyers. Given the size of the companies exited, Nordic elderly and disabled care has moved into large-cap and trade territory, rather than the lower and mid-market space it historically occupied.

Given the activity in the elderly and disabled care industries in Sweden in the past five years, the sectors are likely to cool off in the next year or two, with private equity shifting its focus to other healthcare investments. In Denmark, the government ran privatisation schemes from the early 2000s that the buyout industry had hoped to benefit from. But it has since cut subsidies to these services, dropping profits for the private companies supplying them and making it a less attractive proposition for private equity.

Looking ahead, the local private equity industry is likely to focus its healthcare investments on areas such as in-home care, dental care, physiotherapy, elective and niche surgeries, as well as elderly and disabled care in countries such as Norway and Finland. While private healthcare in Finland has seen private equity involvement for years, it and Norway have historically seen less investment activity in the elderly and disabled care sectors, though demographic pressures coupled with economic tribulations are likely to strain public finances and create fertile ground for private care providers.

This year, ICG entered the fray in Finland, acquiring Finnish in-home care provider Esperi from CapMan Buyout, while Danish GP Polaris acquired Swedish plastic surgery group Akademikliniken in May.

• Tweet  
• Facebook  
• LinkedIn  
• Google plus  
• Send to  

• Topics
• GPs
• Healthcare
• Nordics
• Top story
• Sweden
• KKR
• Triton Partners