Deal in Focus: Doughty sells Quirón to CVC

Building on its previous experience in the Spanish healthcare market, CVC Capital Partners acquired a 62% stake in Grupo Hospitalario Quirón from Doughty Hanson in early July. Negotiations took around three months, culminating in a secondary buyout that saw Doughty reap 2x money and an IRR of around 40%.

The story began in late 2011, when Doughty bought USP Hospitales from Barclays and Royal Bank of Scotland for €335m – 9x the firm's forecast EBITDA for the year. "Despite a pretty dim economic outlook in Spain at that time, we were optimistic on the private healthcare sector because we thought it was a sector that was going to grow regardless of the economy," says Doughty partner Francisco Churtichaga.

"We did a micro, rather than macro, analysis," says Churtichaga. "The public health system was under pressure as the government was making cuts to the amount of money going into the system. The private health system therefore was moving forward as patients were increasingly aware of the importance of private insurance coverage."

In 2012, the GP embarked upon a buy-and-build strategy, buying around 40% of Quirón from the Cordón Muro family (who retained the remaining shares) in order to merge the firm with USP Hospitales. The Cordón Muro family exchanged its controlling stake in Quirón for a stake in the larger entity.

"The market was extremely fragmented. We did a bottom-up analysis to see what the next best step was for USP and we came across Quirón. It was a family-run company and the family realised that merging with us would mean they become a smaller part of a much bigger company – it was a win for both businesses. We then bought Teknon, which is probably the most prominent hospital in Barcelona – that was a way of further enhancing our presence in the area."

The final piece in the buy-and-build strategy came in October 2013, when Doughty bought Barcelona-based medical clinic Centro Médico Teknon from Magnum Industrial Partners for €225m. The bolt-ons created a hospital group that boasts more than 2,800 beds across Spain, as well as four fertility treatment centres, consultation centres and day hospitals. The business now has a headcount of 8,200.

"Consolidation was one element of the strategy as the market was extremely fragmented," says Churtichaga. "The other element was to make sure we were presenting something to insurance companies that they could not live without. So we focused on presenting an offer that drew as many customers as possible into our hospitals; we really looked at volume growth in 2012."

Perhaps unsurprisingly, given the recent influx of international investors into the Spanish market, Doughty received a lot of interest in the asset from other buyout houses with rival interest presented by foreign trade buyers. "What really made us stick with CVC is that they own a company called IDC [the Spanish hospital unit of Swedish healthcare group Capio, owned by Apax and Nordic Capital, bought by the GP in 2011], which is very complementary to Quirón so they were in the best position in terms of being able to realise synergies," says Churtichaga. With both players active in the Spanish market for some time, the relationship was already cemented, shortening the period spent in negotiations. "There was no real barrier to entry in terms of trust," says .

The lure of potential portfolio synergies meant an exit route opened earlier than anticipated for Doughty, which had expected to pursue an initial public offering for the company further down the line. "We faced the decision of exiting the company and getting that price now or waiting with the uncertainty that is inherent in a two-year wait. It was a tough but pragmatic decision," says Churtichaga.

And with competition heating up in Spain, Churtichaga commends his firm's unflinching commitment to the region: "We've been in Spain since 2006, through the tough times. It's interesting that a lot of funds now think of Spain as the place to be. But I think you either need to be looking at or analysing the good opportunities already, otherwise the prices are really going to go up. I don't think we would have been able to do the USP transaction in similar terms now because there would have been so much more competition from other players."

People
Doughty Hanson – Francisco G Churtichaga

Advisers
Vendor – Freshfields (Legal); PwC (Financial due diligence).

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