Private equity nursing healthcare providers

Greg Gille
22 March 2011

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The beginning of the year has seen private equity investors eager to tap into Europe’s healthcare services market, with a string of deals being completed both in the UK and on the continent. Could this growing and resilient sector be the perfect investment in a troubled economic climate? Greg Gille reports

While the life sciences sector largely remains the turf of venture houses and highly specialised funds, it would seem that generalist players have woken up to the possibilities offered by another growing segment of the healthcare market. Although signs of the renewed interest for the sector were already visible towards the end of last year, 2011 started with a flurry of investments in private healthcare providers.

Advent International kicked things off in January with the £925m buyout of Priory Group from RBS. The mental health and specialist care services provider apparently turned a few heads around as Advent had to fend off competition from rival firms such as Bain, Blackstone and Cinven in the auction process. This is a testament to Priory's health: the company posted a £123.3m turnover in 2002, which had doubled to £242.2m by 2008 and further increased to £256.7m in 2009. Its profits also rose from £40.7m in 2008 to £86m the following year.

Still in the UK, Carlyle is building a dental care giant with its acquisition of Integrated Dental Holdings from Bank of America Merrill Lynch Capital Partners. It is merging it with Palamon-backed Associated Dental Practices and the enlarged group will be worth around £600m, roughly 10x its £55-60m combined EBITDA.

Across the pond, the French private clinics market also looks attractive to Bridgepoint, as the firm announced two investments earlier this month: its mid-market team Bridgepoint Development Capital (BDC) acquired a majority stake in clinics operator Compagnie Stéphanoise de Santé (C2S), while Bridgepoint Europe IV backed the OBO of Médipôle Sud Santé - a deal that valued the company at more than €200m. Retirement homes and homecare providers also proved popular over the past few months, with a number of smaller deals being completed.

At a time when buyout houses are on the lookout for resilient assets, able to make the most of a lacklustre economic environment, the European private healthcare market trends seem increasingly attractive to investors: "We had been looking at the private clinics sector for a long time. It benefits from favourable demographic trends - you can reliably count on a 2-3% market growth per year. This visibility is hard to come by in other sectors," notes BDC partner Pierre Colasson, who led the acquisition of C2S.

An ageing population and demand for better patient care aside, private healthcare providers are also likely to benefit from the ongoing efforts undertaken by European governments to tackle deficits and ease the burden of costly public establishments. This is particularly relevant in the UK - with the coalition government looking to significantly downsize the public sector - and was one of the factors at play in the buyout of Priory: Advent believes private healthcare providers are likely to be commissioned to supply an increasing number of services on behalf of the public sector over the coming year.

This is not to say that the sector is a particularly easy one to penetrate, as it is often capital-intensive and requires GPs to navigate tight regulatory frameworks. This can, however, be viewed as another strength, according to Colasson: "The heavily regulated nature of the market - which presents a few drawbacks, notably in terms of prices charged for the services - can also be seen as an attractive factor, since it guarantees high barriers to entry." By limiting competition, this could enable GPs already invested in the market to take advantage of the consolidation opportunities it offers.

Indeed, the private healthcare services sector is for the moment rather fragmented, with a myriad of small independent outfits operating on a local scale - quite similar in that regard to the recruitment services market, which also witnessed several buy-and-build transactions taking place at the end of 2010. This was another key driver in most of the aforementioned deals, as private equity owners will look for relevant bolt-ons in order to benefit from both economies of scale and a wider customers base.

Dealflow in the healthcare services sector should therefore keep investors busy in the coming months, as today's buyouts pave the way for tomorrow's acquisition finance deals.