Investors eye UK healthcare sector after strong 2012
Financial investors capitalise on sizeable opportunities emerging in the market
Driven by government reforms and a push for efficiencies, the UK health and social care sector has had a landmark year with rich deal activity, according to recent research from Clearwater Corporate Finance.
With the Government agenda to open up more parts of the NHS to the private sector, financial investors are capitalising on the sizeable opportunities emerging in the market.
Research from research and analytics company, Bain, estimates that around 160 large-scale NHS contracts, worth a total of £5billion, are currently being advertised to private sector bidders. These cut across the full range of NHS services from primary and secondary care through to domiciliary care.
As it comes to terms with the recent legislative changes, financial investors have continued to pump money into the sector
Against this backdrop, the health and social care market shows resilient trading and strong recurring revenues. As a result, financial investment is pouring into the market as investors recognise emerging opportunities.
The past 12 months has seen growing interest from US investors, particularly Real Estate Investment Trusts (REITs), which are interested in sizeable sale-and-lease-back opportunities.
Griffin-American Healthcare REIT II is just one example, choosing the UK for its first international acquisition following its purchase of 44 care homes from Myriad Healthcare for £299m. Griffin was driven by strong demand in the UK, and its own drive to broaden its geographical footprint.
International buyers are also drawn in by large public sector contracts from bodies such as the Department of Work and Pensions, evidenced in the acquisition of Health Management by Maximus Health Services this year.
Looking forward, domicilliary care remains a particularly attractive route into the market for new players and continues to account for the largest share of transactions. In general terms, the primary care sector has maintained its attractiveness to financial investors, especially in segments where the market remains fragmented. Such interest was typified by the secondary buyout of dental care services group, Oasis, and by recent investment in healthcare support services group DBG by the Carlyle Group and Palamon Capital Partners.
The mental health market has also seen some interesting developments as private providers and NHS bodies work ever more closely together.
The push for more rehabilitation and recovery-based care for people with mental health conditions to help them live independently continues to drive activity. This trend was exemplified in the acquisition of Independent Living Group (ILG) by Voyage Care, and the acquisition of CuroCare, a specialist provider of residential care, by Lyceum Capital. The acquisition will support its growth plans in London and the South East.
The plethora of available opportunities have increased the buyer pool, which augers well for sustained activity in the year ahead
Asset-light services also remain a target for investors, with domiciliary care, foster care and supported living attracting the majority of investment from those keen to take advantage of the increasing outsourcing opportunities. Underdeveloped areas that are seeing financial investor interest will be in fragmented markets such as fertility and dental clinics.
Ramesh Jassal, director of healthcare market intelligence at Clearwater Corporate Finance, said: “With the market proving a rich source of M&A deal flow activity, 2013 has undoubtedly been an important year for health and social care in the UK.
“As it comes to terms with the recent legislative changes, financial investors have continued to pump money into the sector. This is a result of better quality of deal flow in 2012 compared to the previous year, as well as buyers moderating their price expectations and recognising sensible valuations.”
“In summary, the plethora of available opportunities have increased the buyer pool, which augers well for sustained activity in the year ahead.”
