After a promising start to the year, we look at where the opportunities lie in UK healthcare and the sector outlook for 2022.
Peter Jennings reviews a record quarter for M&A activity and teams up with Daniel Smith to find out why UK and Irish healthcare is now a hot buy for European investors.
Plus, read our insight on how private healthcare can get business transformation right.
IN THIS REVIEW
Once again, the quarter recorded its highest number of deals since we started monitoring M&A in 2017, with volume up 14% on the already outstanding figure for Q4 2021.
Graph 1: announced M&A activity in Healthcare - quarterly
However, the make-up of acquirers shifted slightly with private equity (PE) being less active than the previous quarter – deal volume was down 25% on Q4 2021. It should be noted that while deal volume for PE declined, overall it remains buoyant.
Graph 2: Announced PE activity in Healthcare - quarterly
Q1 2022 saw continued activity in specialist care, NHS outsourced services, medical devices, and pharma services. We also witnessed the beginnings of a renaissance for elderly care as the sector emerged from the challenges it faced during coronavirus restrictions, with Hill Care acquiring 29 Four Seasons Healthcare properties in Northern Ireland, Woodleigh Care being acquired by Impact REIT, and 49 Caring Homes properties being acquired by Santerre Health Investors from DigitalBridge (formerly Colony Capital).
There was an uptick in investment coming from infrastructure funds and REITS, as well as international acquirers (both financial and corporate).
Specialist care saw continued activity in Q1 2022, including the acquisition of Voyage Care by Wren House Infrastructure Management; Holmleigh Care Group acquired Ludlow Street Healthcare. Holmleigh itself being majority-owned by infrastructure fund, Ancala Partners (who acquired Holmleigh in April 2020) and the Queens Park Equity (QPE) backed MBO of Blue Ribbon, a specialist provider of adult residential care on which we advised QPE.
NHS outsourcers and service providers both had another active quarter as the unlocking of elective surgeries and social care provisions continues to draw interest from suitors. Medequip was acquired by Medux, NHS insourcer 18 Weeks Support was acquired by Summit Partners and Pioneer Health, a provider of NHS secondary care services, was acquired by Totally Plc.
As predicted last quarter, medical devices saw increased activity with the acquisition of Prism Healthcare by Charme Capital (who acquired it from another PE house, Limerston Capital) and provider of medical information access carts, Parity Medical, was acquired by US medical devices manufacturer Touchpoint Inc. We advised Parity on the deal.
Q1 2022 was also a very active one for pharma services, attracting much interest from PE and corporates alike. PE houses; Chiltern Capital, Limerston Capital, and GHO Capital, all invested in the sector with contract manufacturer Surepharm, contract-testing services provider Wickham Micro, and contract developer and manufacturer Roslyn Cell Technologies respectively. The corporates investing included Prime Global and Pharmaron, acquiring HCD Economics and Aesica in turn.
Three key deals
Healthcare M&A outlook
With such a promising start to 2022, the year ahead appears encouraging for the healthcare sector. Increased investment from abroad, particularly from Europe for social-care assets and the increasing participation by infrastructure and investment funds, demonstrates the resilience and attractiveness of the sector. The renewed interest in elderly care assets – one part of the market that was deemed less attractive eighteen months ago, is a strong indicator that the healthcare sector is going from strength to strength.
There has been an influx of investment from mainland Europe into the UK and Irish private healthcare sectors over the last two years. Interest is flowing in from trade, private equity and real estate investment trusts (REITs). But why?
Elderly care: 'population aged 80+ expected to double by 2050'
European REITs are particularly active in the UK and Irish elderly care markets due to the two countries’ ageing populations and opportunities for consolidation.
In July 2021, French real estate investment fund SCPI Pierval Santé entered the UK healthcare market through the £34 million acquisition of three care homes let by Care UK. It was followed in October 2021 by further investment from Belgian real estate company Aedifica, which acquired a purpose-built UK care home.
In a statement on the Brussels-based company’s website, Aedifica's UK country manager Bruce Walker said: “The UK's population aged 80 and over is expected to double to 10% of the total population by 2050. In addition, the healthcare real estate market is still very fragmented due to the large number of local private players operating predominantly small and outdated buildings.”
Another Belgian REIT, Cofinimmo, entered the Irish healthcare real estate sector with the acquisition of six nursing and care homes and one rehabilitation clinic. A spokesperson said that Ireland’s nursing home supply does not adequately meet increasing demand or modern comfort expectations.
It is not just REITs that are showing interest: European care home operators are also scooping up assets. French care home group Korian’s acquisition of the UK’s Berkley Care Group was one of the landmark deals of last year. Korian, one of the leading operators in its home market, cited a growing deficit in nursing home beds and demand for high-end facilities as the impetus for the deal. This is its first foray into the UK market and we expect that it will not be the last.
Any acquiring healthcare operator faces the challenge of proving they can scale without scandal. As headlines on both sides of the Channel have shown, it is a challenge for private care home operators to grow rapidly while maintaining the necessary high quality of operations.
Specialist care: buyers broadening services and locations
Deals in specialist care have been driven by buyers seeking expansion, both in the services they offer and the geographies they serve. The sub-sector is attractive due to the fee structures associated with high acuity care and the long-term nature of client relationships.
In early 2021, Dutch private equity group Waterland completed its acquisition of UK behavioural healthcare provider Priory Group, to merge it with Median, Germany’s largest provider of rehabilitation, neurology and orthopaedic treatments. The deal enabled Waterland to expand in the UK and use MEDIAN’s market experience to increase the range of Priory Group’s services.
Dental: consolidation driving M&A
Pan-European consolidation is driving deal activity in the dental sector, with two players featuring prominently.
Dutch European Dental, which operates 174 clinics in six countries, acquired a majority stake in UK-based Dental Beauty Partners in February 2021, adding the UK to its list of geographies.
Colosseum Dental Group (backed by Swiss family office Jacobs Holdings), operates 375 dental practices in nine countries. In March 2022 it added to its 70-plus UK clinics with the acquisition of two private practices in west London.
IVF: private interest as NHS cuts spending
UK in vitro fertilisation (IVF) is big business for European private equity. The clinics are well-respected industry leaders and the UK was an early proponent of IVF. There is a growth opportunity for the private market as the NHS reigns back spending on IVF and the older-parent market expands.
In January 2022, Nordic Capital-backed a management buyout of Care Fertility, a UK clinic group, to “support the company’s international growth ambitions”.
It follows its Nordic compatriot, Impilo, which in 2019 acquired The Fertility Partnership, one of the leading European providers of fertility services, ultrasound pregnancy scans and hormone treatments in the UK and Poland. Again, the stated reason was to fund international expansion.
Why the UK, why now?
It is tricky to pinpoint the exact reasoning behind Europe’s increased interest in UK and Irish healthcare. After all, the attractive attributes – government-backed income, ageing populations and so on – are not new. Potentially it is a combination of several factors:
Opportunities for UK and Irish healthcare owners
The increased European interest provides further opportunities for domestic healthcare companies looking to sell, secure extra funding, or expand into Europe themselves.
Business transformation traditionally focuses on quantitative outcomes surrounding strategic, large-scale initiatives and responding to the economic outlook or legislative changes: from cost reduction to Brexit and IR35. Now, businesses are finding real value in people, skills, and infrastructure.