Sharing insight on the latest trends and opportunities in the sector
You can find out what's happening in our quarterly insight.
In this edition, the M&A analysis comes from Peter Jennings and Jessica Sandercock. Peter also explains why investor confidence in digital healthcare continues to grow.
To stay informed on the sector, read our Q3 review.
The UK private healthcare sector is still proving strong in all areas, with investments from private equity (PE), real estate investment trusts (REITs), and private buyers from both the UK and abroad.
The social care market looks to be the most active this quarter, with just over a third of deals. This market, especially elderly care, was one of the most effected by COVID-19, but has come back through with investors attracted to it.
PE activity in the UK private-healthcare market increased this quarter, seeing 50% of deals in Q3 backed by PE: a 12% on last quarter, showing that there's a strong investor appetite for this sector.
Q3 saw an increase in social-care deals, especially in the elderly-care market, which has been slowly making a comeback this year. Aedifica, the Belgium REIT, who've been very active in this space, continue to be active, with four deals this quarter totaling six care homes (two purpose-built and four under construction). This market continues to be a space REITs like and want to continue growing in. Beaumont Care Homes acquired the remaining 29 Four Seasons care homes in Northern Ireland. This marks an important stage in the ongoing restructure, leaving just over 100 homes to sell in England, Scotland, and Jersey. Anchor Hanover made two acquisitions this quarter: both are £50 million-plus deals. They acquired Halycon Care Homes Topco Ltd in Leeds and Hadrian Healthcare (Roundhay) Ltd and Hadrian Healthcare (Skipton) Ltd both homes are under construction. We also saw Acalis enter the UK market with the acquisition of Balhousie Care.
Specialist care
The specialist care market has also been active in Q3. Voyage Care backed by Wren House acquired 16 services from The Disabilities Trust. This marks Voyage Care's first acquisitions since being acquired by Wren House earlier this year. Elysium continues to grow with an acquisition of Regis Healthcare, a low security hospital in South Wales – seeing them increase their footprint in the UK. Accomplish Group Ltd also acquired in Wales this quarter, with the purchase of Recovery Care Ltd, a care service for vulnerable adults.
The domiciliary-care market saw acquisitions from Cera Care, who raised £260 million in equity and debt funding, which will support their growth strategy. Optimo Group made two acquisitions: Safehands Support Services and Keymen Associates Ltd (trades as Mayday Homecare), which are their first acquisitions since 2018.
Retail healthcare
Retail healthcare saw dentistry become the highest performing subsector. We saw Dentex Healthcare Group make three acquisitions in Q3. They acquired Darwood & Tanner a practice in London, Shawlands Dental Care in Glasgow and Ceramiart Dental Laboratories Ltd in London. Portman Healthcare acquired Sharoe Green Dental Practice, a Preston, UK-based dental practice operator. During these acquisitions we saw a merger between Portman Healthcare and Dentex Healthcare Group, forming the largest privately-focused dental group in the UK.
Following their recent investment from CVC, FutureLife acquired The Centre for Reproductive and Genetic Health this quarter. This private practice will add to FutureLife's existing 40 clinics across Europe. This looks to be the first of a series of acquisitions with FutureLife wanting to grow their footprint in key regions.
We saw Y1 Capital acquire the cosmetic surgery business and medical aesthetics business of Transform Hospital Group Ltd from Aureliuslogy.
Veterinary
The veterinary market continued activity, with Vet Partners Ltd making two acquisitions this quarter: acquiring Westgate Veterinary Hospital in Ireland and Grupo Veterinario Petsalud in Spain. CVS continues to grow in the UK with the acquisition of Werrington Vets Ltd.
Medical devices and healthcare technology
The medical devices and healthcare technology sectors are still attracting lots of interest: startup companies Haxarad Group, a radiology platform; Optellium Ltd, AI clinical decision-support software platform operator – and Signum Surgical, a Galway based medical technology company developing solutions to treat colorectal diseases, all go through funding rounds showing this sector is of great interest to investors.
We advised on the sale of Med Imaging Holdings Limited (Mi Healthcare) a UK-based medical equipment repair and maintenance services company to Probo Medical a portfolio company of Avista Capital Holdings LP. PE firm Inflexion acquired SteriPack, a contract manufacturer based in Ireland, this acquisition will allow them to continue to grow in the international market.
We saw residential care comparison site Lottie raise funds of £6.1million at the start of the quarter, they then acquired software company Found for £1.5million. Found allows managers of care homes to check beds as well as manage track sales. Using this software should help improve compliance, sales, and quality of care.
Pharma services
The pharma services market has seen activity with both UK and global buyers. Investor AB, the Sweden-based investment company, has acquired SAL Scientific Ltd who develop and manufacture cell growth supplements. US company Arcutis Biotherapeutics, Inc. has entered into an agreement to acquire Ducentis BioTherapeutics Ltd, an Oxford, UK-based immune system disease treatment developer, and Roquefort Therapeutics, plc, has agreed to acquire Oncogeni Ltd, a Stratford-Upon-Avon UK-based cancer medicines development services.
The activity above shows that the private healthcare market remains strong in all areas. We're still seeing increased investments from private equity and commercial firms in the UK, as well as abroad still interested in private healthcare.
The sector has once again proved resilient during Q3, but the increase in cost of living and an unsettled economy will present further challenges, and we'll have to see how the sector continues to cope.
For more insight and guidance, get in touch with Peter Jennings.
The accelerated adoption of online services, such as GP appointments and prescription renewal, during COVID-19, has proven that digital solutions work. At the same time, an ageing population, staffing shortages, and rising costs prove they're needed.
Digital healthcare companies offering diagnostic solutions must gain approval from a regulator, such as the Food and Drug Agency (FDA) in the USA, or the Medicines and Healthcare Regulatory Agency (MHRA) in the UK. Others may have to meet strict cybersecurity requirements. These checks may create a slightly longer route to market than other tech, but it can be substantially shorter than traditional pharmaceutical products. This higher regulatory need means that there's less competition on arrival.
ESG benefits
Digital health is an attractive sector for funds dedicated to environment, social, and governance (ESG), though it delivers more on the S and the G. It has the potential to solve social problems, such as inequality of access to GP services, as well as advancing cheaper and more efficient treatment. On the governance side, it can help with anything from the security of patient records to logging the sign-off process for prescriptions.
More public sector investment
Following a disastrous attempt to roll out a national IT system over a decade ago, the NHS has moved to localised IT procurement. This opens the playing field for small and mid-market high-growth companies. Nourish Care Systems, which was this year acquired by private equity firm Livingbridge, is a case in point. In June 2022, the UK government also set out plans to invest £2 billion in the UK.
Digital health can fall into several categories including administrative solutions (such as patient records), therapeutic and diagnostic technology (eg, patient health apps), and research and development (eg, AI for drug research). From these groups, I've focused on six high-growth areas that are making waves in digital health.
1 Electronic health records
The UK health secretary has set a target for 90% of NHS trusts to be using electronic records by 2023, with the remaining 10% expected to be in process. This large-scale transformation is expected to result in a surge in demand for solutions providers. In June 2022, US-based UnitedHealth gave a huge vote of confidence to the future of UK electronic health records when it agreed to acquire EMIS for £1.24 billion. The scale of the deal shows the potential of the UK’s creaking records systems.
Outside the NHS, electronic health record and pathway manager firms like Meddbase are offering innovative solutions and joining up patient pathways to improve efficiency in the private healthcare sector.
2 Patient experience, practice management, and administration
With over 30K vacancies currently advertised on the NHS website and pressure to cut costs, there's a strong demand for systems that will save time and money. Examples include enabling patients to book appointments online, allocating staff resources, or helping with billing and payments.
In April 2022, we advised adam HTT on its sale to Access Group. The UK-based company provides a platform for the procurement of public services, such as health and social care, to over 60 public bodies, with a particularly strong presence in the NHS.
3 Patient health platforms and apps
Patient health platforms and apps can provide a cheap, scalable, and more accurate way to improve patient outcomes.
UK-based Closed Loop Medicine, for example, develops combination drug and digital products. It's currently developing what could be one of the first single prescription drug plus digital therapy (DTx) combination products for insomnia
There's been a boom in apps, some of which are available on the NHS.
Clinical Partners, which provides services to the NHS and the private sector, employs 300 dedicated people carrying out online and face-to face support. They offer free online tests for conditions such as autism, ADHD, and bipolar disorder, removing the need for a GP to refer them for further assessment.
In the US, Akili has launched the only FDA-approved video game treatment for children with ADHD, called EndeavorRX. It's available with a prescription, which can be obtained on its website through a virtual appointment.
4 Monitoring
Digital health is not just about saving time and money, but improving patient outcomes. Digital monitoring frees up medical staff and enables them to catch life-threatening conditions, such as a heart attacks, before they escalate.
Oxford-based OBS Medical specialises in predictive algorithms for identifying critical instability in patients, hours before most physicians and nurses. Interestingly, it was spun out from a company that monitors Rolls-Royce jet engines.
5 Clinical research
The average cost of bringing a new drug to market is c. USD 2 billion and the process can take between 10-15 years. Returns reduce dramatically when patents expire. There are a handful of companies that use big data and AI to make the process cheaper and more efficient.
London-based BenevolentAI, for example, uses AI to enhance and enable the discovery of new drugs by connecting the relevant scientific data and clinical papers. The business has partnered with AstraZeneca to develop a number of new drugs. The discovery of a new use for a drug can enable pharmaceutical companies to extend their patent, making its proposition extremely valuable.
6 Diagnostics
AI diagnostics can cut waiting times, costs, and help deliver more accurate results. A global shortage of consultant pathologists makes demand for such benefits even more pressing.
Optellum claims to be the world’s first AI-based early lung cancer decision support software. Its platform aids clinicians in identifying at-risk patients and guide lung cancer management.
Some of the most innovative digital health solutions have emerged due to their use of cutting-edge AI and big data. An extreme example is Google’s sister company Deepmind, which in 2020 successfully used artificial intelligence to predict the 3D structures of nearly every catalogued protein known to science. This has huge implications for the advancement of drug discovery.
Though less headline-grabbing, cybersecurity is set to play a supporting role in the digital health boom, due to the sensitive nature of the data involved.
It's ironic that it took COVID-19, a health disaster, to unlock the potential of a sector that can both save and transform lives. As the sector reinvents itself for the digital world, investors have a key role to play.
For more insight and guidance, get in touch with Peter Jennings.
