Healthcare equity deals set to hit £15bn

Last year, private equity deals in healthcare totalled £4.5bn, according to
the Centre for Management Buy-Out Research. This is three times the £1.5bn worth
of deals in 2004. Volumes were also up, climbing from 25 deals in 2004 to 31 in

Corporate finance experts believe this rapid growth is not a one-off and are
confident that 2006 will generate further growth.

So far this year bids have already been tabled for Four Seasons, Allianz
Capital Partners’ care home business, while Alliance Medical and General
Healthcare are set to sell more than £2bn worth of healthcare assets.

‘We have a large population that will always need care, government is the
main investor and cash flows are strong so healthcare is very attractive for
private equity. This year is off to a flying start,’ said David Jones, a
corporate finance partner at Deloitte.

According to Deloitte, the growing interest in healthcare and the high debt
multiples private equity groups are prepared to use, means that there could be
as much as £15bn worth of funds available for investment in the sector.

The main drivers behind the growth spurt include ongoing government
investment, growing demand for long-term healthcare and the new market emerging
from the appetite for cosmetic surgery, child care and dentistry.

Growing consumer demand, however, has not been the only attraction for
private equity.

The high value locked into healthcare real estate has also been enticing and
tickled the interest of property funds.

Jones said this had seen a number of private equity businesses team up with
property funds and split operations from real estate. ‘We have seen private
equity acquiring healthcare businesses and splitting the operating model and the
assets in so called “propco/opco” deals. This split is driving the biggest
healthcare multiples as property funds look to acquire the assets,’ Jones said.

A recent example of this model is the £1bn sale and leaseback deal Royal Bank
of Scotland closed for the property portfolio of Southern Cross nursing homes.
Southern Cross is the biggest nursing home provider in the UK. It was formed
after a flurry of acquisitions by US private equity group Blackstone and will be
floated later this year.

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