12 minute read
A confident market
from HealthInvestor
Jenna Lomax looks at some of the most recent industry deals and asks the experts for their predictions
Kishan Chotai, August Equity
Justin Crowther, Alantra
The UK healthcare sector’s deal volumes have steadily increased since 2015. And 10 years after the financial crisis, it seems the sector has experienced a steady and promising upward trajectory. Could 2020 be following in the same vein?
Recent data collated by financial services firm Alantra shows that 2019 was a record year for healthcare transaction activity in the UK, with capital increasingly invested into what it describes as “highly specialist services with potential for growth”, such as sexual diagnostics clinics, non-surgical care centres and transitional services.
A total of 179 healthcare deals were completed last year, an increase of 17% on the sector’s 2018 total. And with liquidity high and interest rates remaining low, experts say 2020 is likely to see more growth.
“Going into 2020, confidence is returning and there remains plentiful liquidity,” says Justin Crowther, head of UK healthcare at Alantra. “These factors, combined with the strong M&A drivers underpinning the healthcare sector, are creating a positive backdrop for attractive deal levels this year.”
“Investors have remained interested in healthcare services because the sector has continued to demonstrate buoyancy through the cycle especially in comparison to other traditional sectors such as retail and industrials”, says Kishan Chotai, director at August Equity.
In addition, the UK now has a more stable political environment, with the Conservatives winning the general election in December, and Brexit going ahead. But as with most things, there’s always an element of uncertainty. How long can investors enjoy an ascending path in healthcare? What obstacles, if any, are standing in the way? Where investment is going As mentioned, sexual diagnostics clinics, non-surgical care centres and transitional services are already providing the sector with new investment and consolidation opportunities. But what about other areas of healthcare – such as dentistry or veterinary care?
Veterinary care revenue is estimated to amount to £4 billion for the financial year 2019-20, according to business analytics company, IBISWorld. It is one of many fragmented provider landscapes within healthcare which, even just a few years ago only counted for “a combined market share of less than 20%”, says Crowther. Dentistry, which has less than 75% of practices under independent ownership in the UK, “provides investors with both an organic growth opportunity alongside an ability to consolidate”, says Chotai. “This is largely because of increased funding from the NHS and the rise of cosmetic dentistry such as teeth whitening”, he adds.
As for healthcare real estate, Savills research shows that total UK healthcare real estate investment in 2019 amounted to more than £3 billion, double the £1.5 billion invested in 2018. The firm highlights that this increase in transaction volumes was “predominantly a result of continued appetite from UK-based institutional investors and REITs attracted by long leases and indexed rental uplifts, as well as renewed interest from overseas buyers.” ▶ Going into 2020, confidence is returning and there remains plentiful liquidity
Looking at 2020, the first three months alone have shown a promising upward trajectory in growth, albeit, not in all healthcare-related areas. The biggest UK real estate deal of this year so far was conducted by MPT when it acquired 30 private hospitals from Hospital Topco Limited for £1.5 billion. The deal was part of Circle Health’s acquisition of BMI Healthcare, which comprised 54 hospitals in total. MPT also paid £347 million for eight private hospitals from Secure Income REIT.
Elsewhere, Octopus Real Estate announced it had finalised two significant acquisitions in the healthcare space this year. As well as raising a further £133.5 million for its Octopus Healthcare Fund, the company acquired a portfolio of six purpose-built care homes let on long leases to Care UK, the UK’s largest independent provider of health and social care, for approximately £110 million.
The real estate investment firm also began a joint venture with Audley Group, a provider of luxury retirement villages, and Schroders to fund the development of four retirement villages. The joint venture agreement covers the Audley Villages sites at Cobham in Surrey, Sunningdale Park in Berkshire, Scarcroft in West Yorkshire and Stanbridge Earls in Hampshire. to £615 million in 2019, according to Savills. But Savills found that on the other hand, the primary care market saw continued interest with 28 deals last year, following 33 and 24 deals in 2017 and 2018, respectively. Overall, since 2017, more than £750 million has been invested in primary care facilities.
Commenting on these findings, Craig Woollam, head of Savills healthcare, says: “In a similar fashion to operators, investors are generally seeking care homes of the highest quality with strong profitability, and the paucity of new developments, not just in the last 12 months but over the past few years, has limited such opportunities.” He adds: “Some investors and REITs have sought to counter this imbalance by forward funding new developments, which could not only add new quality assets to their portfolios but also, in theory, provide slightly better returns than standing investments. With the limited levels of supply we have seen record pricing for investment products, however growth in trading multiples for the highest-quality homes and low interest rates have, for some owner operators, been sufficient to counter the lure of investment funding and stick with traditional debt funding.” ▶
Elderly care In comparison to the strong growth in private independent hospitals, investment in the elderly care home market saw transaction volumes nearly halve from £1.2 billion in 2018
Looking overseas Looking abroad, international investors are seeking to invest significant capital into UK care services and REITs, more so since the general election.
Crowther suggests that “European buyers have generally been more concerned about the UK’s exit from the EU than their North American and Asian counterparts.” But in the latter part of 2019 that concern seemed to ebb away. Crowther says this theme was highlighted in one particular acquisition – Ardenton Capital’s first investment in healthcare with the acquisition of Pebbles Care late last year. Pebbles Care is an operator of residential care for young people, situated across the North of England and Scotland.
Discussing the acquisition, Crowther comments: “Ardenton Capital’s acquisition of Pebbles Care represents a clear opportunity for private equity and alternative capital providers to develop best-in-class services alongside successful incumbent owners and management teams seeking support to deliver long-term sustainable business growth by expanding services and increasing capacity.”
Over the past year, investment into the UK healthcare real estate market has grown ever-more international, Savills research indicates, with 2019 seeing capital from the US, Europe, the Middle East and Asia competing with domestic money for buying opportunities.”
Savills indicates that the largest care home deal last year was the £176 million paid by joint venture partners Cindat and Omega Healthcare Investors for a portfolio of 68 elderly care homes. Savills comments that this partnership of Chinese private equity and a NYSE-listed healthcare specialist REIT “demonstrates international capital’s growing appetite for the UK healthcare market”.
Opportunities for growth and consolidation Within the UK, Crowther indicates pressures on NHS funding are increasing demand for specialist outsourced solutions which are “increasingly relied upon to provide low-cost and highly efficient diagnostic and treatment solutions” in part to take the load off the NHS.
He adds: “Government austerity measures, alongside the rationing of services deemed non-essential, continue to constrain those commissioning these services. The private sector is being used to absorb capacity and hopefully to improve NHS delivery through partnership models. Specialist services providing faster access to primary care through quicker diagnostics or the use of cutting-edge operational and clinical technologies are visibly helping to ease the growing public sector burden.”
Although this burden is all too apparent in the NHS right now, elsewhere there is opportunity for those creating innovative products and outsourced solutions, especially within these specialist services.
Ever-changing healthcare regulation and CQC rulings provide opportunities for tech companies to innovate and create new solutions constantly. Healthcare providers – whether they be management, clinicians or administrative staff – need to adhere to new rules, industry change and governmental regulation.
As Chotai, says: “With the ever-changing and complex nature of healthcare compliance, specialist solutions help organisations adhere to regulatory requirements and improve efficiency.” Craig Woollam, Savills
Last year August Equity invested in CODE, a provider of compliance and HR services to dental practices in the UK. “The attraction of CODE is that once a customer uses the platform it becomes ingrained into their day-to-day operations as it digitises a manual paper-based process”, says Chotai, “making life easier for practitioners while ensuring they are compliant with the CQC’s regulations.” In addition, as aforementioned in the case of veterinary services, it is fragmented markets that also present consolidation opportunities and this also goes for many healthcare services.
Some of the most popular healthcare services likely to experience more consolidation in 2020 are services such as physiotherapy, fertility and dermatology, Crowther predicts, as they “typically use a multi-site business model”.
He adds: “The rising awareness of mental health and physical wellbeing is being reflected in consumer discretionary spending trends and, in turn, the emergence of a consumer healthcare marketplace. This can be categorised by both the level of medical need and the specialist nature of procedures.”
Chotai comments: “Mental health, physiotherapy and dermatology are all markets which are yet to see any significant consolidation by investors and are growing strongly due to an increased focus on health and wellbeing.” He concludes: “There are still a number of consumer healthcare markets which have plenty of runway for consolidation. Other popular buy and build sectors still remain highly fragmented and attractive to investors due to their macroeconomic resilience.” n
Finalists
10 June 2020 JW Marriott Grosvenor House, London
Silver partner
Event partners
Advisory & Finance
Bank or lender of the year • AIB GB • Barclays • Clydesdale & Yorkshire Bank • Fortwell Capital • HSBC UK • NatWest • OakNorth Bank • Shawbrook Bank
Consultants of the year – strategic • Candesic • Carterwood • Connell Consulting • EY-Parthenon • Marwood Group • PLMR • PwC • Rushport Advisory • ZPB Associates
Consultants of the year – transactional • Candesic • CIL Management Consultants • Connell Consulting • EY-Parthenon • PwC
Corporate financier of the year • Clearwater International • Deloitte • KPMG UK • Lincoln International • Orbis Partners Legal advisors of the year – private • Bevan Brittan • Browne Jacobson • Bryan Cave Leighton Paisner • Capsticks Solicitors • CMS • DAC Beachcroft • Freeths • Gowling WLG • McDermott Will & Emery UK • Pinsent Masons • Shoosmiths • Stephenson Harwood
Legal advisors of the year – public • Bevan Brittan • CMS • DAC Beachcroft • Hill Dickinson • Mills & Reeve • Pinsent Masons • RadcliffesLeBrasseur • Weightmans
Legal advisors of the year – transactional • Acuity Law • Bevan Brittan • Burges Salmon • CMS • Hill Dickinson • Lester Aldridge • Mills & Reeve • Pinsent Masons • Stephenson Harwood • Trowers & Hamlins
Clinical services
Diagnostics provider of the year • Alliance Medical UK • London Ambulance Service • Re:Cognition Health
Primary care provider of the year • Ascenti • Fieldbay 2019 • Inotec • Premium Care Solutions • Promedica24 • Re:Cognition Health • The Dermatology Partnership
Private hospital group of the year • Aspen Healthcare • Bramley Health • HCA Healthcare UK • Kingsbridge Healthcare Group • Nuffield Health • Ramsay Health Care UK • Schoen Clinic UK • Spire Healthcare
Recruiter of the year • Appoint Recruitment Solutions (Appoint Group) • Blackwood Group • Care UK • CareTech Community Services • Gilbert Meher • Hunter Healthcare • Jane Lewis Healthcare • Nurseplus UK • The Finegreen Group
Investment
Private equity investor of the year • Apposite Capital • Downing • Graphite Capital • Intrinsic Equity (Orbis Partners)
Technology
Technology provider of the year • Civica • Healthcode Ltd • London Ambulance Service • Oxehealth • Perfect Ward • Person Centred Software • uMedeor
IT innovator of the year • Ascenti • Healthcode Ltd • HowDidWeDo? • Liva Healthcare • Log my Care • London Ambulance Service • My Clinical Outcomes • The Good Care Group • Zava
For more information about the event and sponsorship opportunities, contact our events team on +44(0)20 7104 2000, email events@ investorpublishing.co.uk or visit our website.
Finalists
Silver partner
Event partners
Property
Property consultants of the year – capital markets • Avison Young • BNP Paribas Real Estate • Christie & Co • Cushman & Wakefield • Gardiner & Theobald • Knight Frank
Property consultants of the year –property services • AECOM • Aitchison Raffety • Carterwood • HealthCare Law • Knight Frank • MESH Construction Consultancy
Property developer of the year • Barchester Healthcare • Care UK • Frontier Estates • Hamberley Development • Medical Centre Developments • Prime • Renaissance Care Group
Property investor of the year • Barchester Healthcare • Care UK • Civitas Social Housing • Elevation Advisors • Inspired Villages • Medical Properties Trust • Octopus Real Estate • Patron Capital Advisers
Social care
Community support provider of the year • Eden Futures • Gaudium • Neural Pathways (UK) – part of the Active Care Group • Venture People
Complex care provider of the year • Active Care Group • Christchurch Group • Complete Care Holdings • Cornerstone Healthcare Group • Inspire Neurocare • Loveday & Co • Phoenix Therapy and Care • Premium Care Solutions • The Oakleaf Group • Total Community Care
Domiciliary care provider of the year • Careline Rochdale • edyn.care • Eidyn Care • Gaudium • Home Care Preferred • MiHomecare • The Good Care Group
Residential care provider of the year • Athena Care Homes • Avery Healthcare Group • Barchester Healthcare • Canford Healthcare • Care UK • Country Court • Hamberley Care Homes • HC-One • Runwood Homes • Strong Life Care
Public private partnership of the year
•Keys Group • Living Well, Taking Control • Mckesson UK • Regent’s Park Healthcare • The Acute Data Alignment Programme (ADAPt)
Specialist care provider of the year • Accomplish Group • Active Care Group • Cornerstone Healthcare Group • Eden Futures • Horizon Care & Education • Keys Group • Loveday & Co • Salutem Healthcare • The Good Care Group • Voyage Care
