corporates are continuing to make acquisitions to increase scale. Examples include Elysium Healthcare and HC-One in care
M&A update
Hc
Healthcare Winter 2017/18
Healthcare
Healthcare M&A set for strong 2018 Healthcare is maintaining the momentum from 2015 and 2016 with deal volumes across the sector high in 2017 as business and investor confidence in the themes supporting and changing the healthcare landscape continue to build. The outcome of the EU referendum and the introduction of the National Living Wage have not yet had a negative impact on mergers and acquisitions (M&A) activity. Significant liquidity is driving up valuations as corporates and financial investors compete for the best businesses.
Key observations “The healthcare sector remains buoyant with deal volumes increasing in 2017. Strong macro drivers, including the ageing population, structural changes in the pharma market and the need to introduce and scale new technologies and treatments, are driving global and UK M&A activity. This is underpinned by high levels of liquidity and a low interest rate environment, both seeming to outweigh the political and economic risks that exist.” Justin Crowther Head of Healthcare, Catalyst Corporate Finance
Continued consolidation across sub-sectors Fragmented markets continue to be consolidated across multiple sectors, particularly dentistry, specialist and elderly care, and veterinary markets. Well-funded financial investors are supporting new platforms while larger corporates are continuing to make acquisitions to increase scale. Examples include Elysium Healthcare and HC-One in care services, Linnaeus in vet services and Bupa in dentistry.
International players are targeting the UK market Attractive market fundamentals combined with the EU referenduminduced weakness in sterling have ensured that the UK healthcare sector continues to attract overseas corporate and financial investors. US-based Cleveland Clinic, Abu Dhabi-based VPS Healthcare and Schoen Clinic are all planning to open hospitals in London with a focus on self-paying patients. German specialist medical group Schoen Clinic has acquired Birmingham-based Newbridge House National Centre for Eating Disorders.
Pharma activity strong A number of positive global macro drivers have kept pharma M&A buoyant, especially the continuing trend for large pharma to outsource across the pharma value chain. There is strong interest, especially from private equity, in businesses that specialise in niche, value added services, as illustrated by the investment made in Random42 by Graphite Capital and Phoenix Private Equity investing in Sygnature Discovery.
Funding continues for platforms We are closer to seeing a number of digital healthcare business being able to achieve scale. Funding and acquisition activity is supporting innovative solutions including the digitisation of the patient/ doctor relationship, as illustrated by new funding for Push Doctor (£20m) and babylon, which has raised an additional £46m for the development of its artificial intelligence doctor application. Major corporates like GE Healthcare, which acquired fetal monitoring technology business Monica Healthcare from Catapult Ventures, are targeting specialists that have developed technology and product solutions which can be rolled out globally. © Catalyst Corporate Finance LLP 2018
In focus: veterinary care market
The £2bn UK veterinary services market is expected to grow at five per cent per annum until 2020. Strong underlying drivers are accelerating the pace at which providers are growing, both organically and through strategic acquisitions. Ongoing humanisation, increased expenditure on premium veterinary care and accessories, and widening insurance coverage are significantly bolstering performance.
“The UK veterinary service market continues to grow rapidly and is offering veterinary group owners an excellent opportunity to realise value. Active trade acquirers and private equity houses are further consolidating and commercialising the sector. Those groups that are well run, in good strategic locations that also provide specialist services such as diagnostics, equine vetting and referral hospitals, are commanding the highest sale multiples.” Matt Kumeta Healthcare Analyst Catalyst Corporate Finance
Specialist veterinary service providers in demand Consolidation in the veterinary market remains in its relative infancy with the leading providers having a market share of only 20 per cent. The fragmented market is an opportunity for businesses looking to add scale and create an integrated veterinary health platform. First-mover financial investors and strategic trade acquirers have taken advantage of industry deregulation and are now benefitting by securing the best locations and acquiring businesses that offer significant value-add, in-house ancillary services. For example, CVS Group’s recent acquisition of B&W Equine Veterinary provides them with access to a state-of-the-art multi-disciplinary referral hospital with two dedicated specialist theatres (colic and orthopaedic) and access to
Number of deals
Figure 1: Global M&A activity in veterinary services and products 160 140 140 120 120 100 110 80 100 6080 60 40 40 20 20 00
2 6 33
1 17 3 13 20
Source: S&P Capital IQ
Ancillary services Private equity (PE), awash with liquidity, is acquiring strong veterinary platforms and growing these rapidly. Examples include Linnaeus Group’s acquisition of Village Vet, the eleventh acquisition made by the veterinary group since it was established in 2014 following Sovereign Capital’s platform investment in Willows Veterinary Centre and Referral Service; EQT Partners’ acquisition of Independent Vetcare from Summit Partners and Inflexion Private Equity’s acquisition of Medivet. These groups, supported by their owners, are likely to further consolidate the market in 2018. As demand for veterinary practices grows, it is likely that acquisition prices will rise and PE may increasingly look to ancillary markets with high levels of growth such as pet insurance, grooming, accessory products, pet nutrition and medicine. Inflexion’s recent investment in pet nutritional supplements producer Lintbells will be used to develop new products, accelerate international expansion and gain scale in a fragmented market.
Figure 2: Activity by acquirer type
2 14 53
16 47
18
26
3
42
23 25 2 20 15 36 31 26 11 12 2012 2013 2014 2015 Healthcare Pharma Medtech Services Food & accessories Animal medicineREITs Veterinary services Trade PE Other Financial
an extensive range of equine diagnostic imaging services.
47
10% 10% 15% 15%
40
2016 Other
2015 2015 2016 2016 2017 2017
2017 Insurance
24% 24%
PE PE
Trade Trade
Source: S&P Capital IQ © Catalyst Corporate Finance LLP 2018
M&A demonstrates sector strength and significant momentum for 2018 Despite political and economic uncertainty, deal volumes in healthcare services increased in 2017, which saw 151 deals completed compared to 136 in 2016. Mix of corporate and private equity activity in healthcare services 2017 saw a handful of larger, wellfunded corporates taking advantage of market conditions to use acquisitions to grow geographically and add niche opportunities. In the specialist care market, newly created Elysium Healthcare completed a number of acquisitions including specialist mental health businesses Raphael Healthcare and Lighthouse Healthcare, thereby adding services in the Midlands and North of England. HC-One continued to make acquisitions in the elderly care space, acquiring 300 BUPA care homes for £300m. 2017 continued to see strong appetite from a range of institutional investment funds including REITs, infrastructure funds and pension funds, as illustrated by Antian Infrastructure Partners’ acquisition of Kisimul and in early 2018, Montreux Healthcare Fund’s acquisition of Active Assistance.
Private equity is also active ew healthcare investor Salutem N Healthcare, which is focusing on the private pay elderly care and State pay care for adults with learning disabilities,
Figure 3: M&A deals by acquirer type
has made its first three acquisitions – Modus Care Group, Pathways Care Group and Clearwater Care Group. Established players have been busy. Apposite acquired specialist care provider Swanton and August Equity bought a new dental platform, Genesis Dental Care.
The potential growth rates of some medical technologies and devices make them strong investment opportunities. PE is using its skills to fund product development and acquisitions, and to develop international growth. pposite Capital-backed Medical Imaging A Partnership acquired the diagnostic arm of Nuada Medical. The shift towards earlier diagnosis and preventative care, combined with technical advances in the quality of imaging which means that more conditions are suitable for diagnostic testing, is supporting rapid growth in the use of diagnostic services. hoenix Equity Partners invested in P Rayner Surgical Group, which specialises in intra-ocular lenses used in cataract and refractive surgery, the most common global surgical procedure with over 24m performed each year.
Number of deals
Number of deals
Numberofofdeals deals Number
60 60 40 40 20 20 00 Trade Trade
Healthcare Pharma Medtech Healthcare Pharma Medtech Services Services PE Other REITs PE OtherFinancial Financial REITs
Source: S&P Capital IQ
Tom Cowap Pharmaceticals Specialist Catalyst Corporate Finance
Figure 4: Healthcare M&A activity by sector 90 160 80 140
100 100 80 80
Globally, 2017 has seen the return of the blockbuster deal. This has been most notable in the CRO space with deals including Pamplona Capital taking Parexel private for $5bn and NYSE-listed LabCorp acquiring UK-based Chiltern for $1.2bn. Deal volumes are rising in the UK mid-market as companies grow rapidly with many servicing a global client base. Examples include Graphite Capital’s acquisition of Random42, Phoenix acquiring Sygnature Discovery and GHO supporting the US expansion of Quotient Clinical.
Private equity targeting Medtech
160 160 140 140 120 120 110 110
Structural change in pharma driving M&A
86
70 120 60 110
69
67 57
50 100 40 80 45 30 60 20 40
83
55
53
47
45 32
68
37
42
40
38 29
31
H1Healthcare 2014 H2 2014Pharma H1 2015 Medtech H2 2015 H1 2016 H2 2016 Services Healthcare Services Pharmaceuticals Trade PE Other Financial REITs
H1 2017
27 25
10 20 00
27
27
36 26
H2 2017
Medtech
Source: S&P Capital IQ © Catalyst Corporate Finance LLP 2018
Selected transactions Date
Country Target description
Acquirer
Country Deal value (£m)
Jan-18 Active Assistance
UK
Care for individuals with complex neurological conditions
Montreux Healthcare Fund
UK
n/d
Jan-18 Lintbells
UK
Producers of nutritional supplements for pets
Inflexion Private Equity
UK
n/d
Dec-17 The Regard Group
UK
Residential and supported living care (learning disabilities, mental health needs and acquired brain injuries)
AMP Capital
Australia
n/d
Nov-17 Porthaven Care Homes
UK
Elderly care homes
Fremont Realty Capital
US
n/d
Nov-17 Clearwater Care
UK
Specialist residential care and supported living services for people with learning disabilities
Salutem Healthcare
UK
n/d
Oct-17
UK
Provider of integrated drug discovery resource and expertise
Phoenix Equity Partners
UK
n/d
Aug-17 Lighthouse Healthcare
UK
Specialist learning disability and mental health provider
Elysium Healthcare
UK
45.0
Aug-17 122 Bupa Care Homes
UK
Care homes
HC-One
UK
300.0
Jul-17
Adelphi Care Services
UK
Learning disabilities care provider
The Regard Group
UK
n/d
Jul-17
Random42
UK
Animation and digital media services
Graphite Capital
UK
n/d
Jul-17
Swanton Care & Community
UK
Residential and supported living care
Apposite Capital
UK
n/d
Jul-17
Kisimul
UK
Specialist education and care provider
Antin Infrastructure Partners Paris
200.0+
Jul-17
Village Vet
UK
Veterinary services
Linnaeus Group
UK
n/d
UK
Provides supported living, residential care and day opportunity services
CareTech
UK
16.9
UK
Operates a centre for eating disorders in children and young people
Schoen Clinic
Germany
n/d
Apr-17 Nuada Medical, MRI business UK
MRI imaging services
Medical Imaging Partnership UK
n/d
Apr-17 Badby Park
UK
Nursing and rehabilitation facility
Elysium Healthcare
UK
n/d
Feb-17 Raphael Healthcare
UK
Specialist mental health services
Elysium Healthcare
UK
n/d
Feb-17 VRCC
UK
Provides veterinary services for dogs and cats
Linnaeus Group
UK
n/d
Feb-17 Steeper Group
UK
Manufactures prosthesis hands
Otto Bock HealthCare
Germany
n/d
Jan-17 Rayner Surgical Group
UK
Manufacturers intraocular lenses and injection devices for cataract surgery applications
Phoenix Equity Partners
UK
n/d
Jul-17
Company
Sygnature Discovery
Selborne Care
May-17 Newbridge Care Systems
Source: S&P Capital IQ
Selected Catalyst Healthcare Sector deals
Sale to
Merger with
Refinance
Sale to
Acquisition of
Contact us If you would like to discuss this report in more detail or the opportunities for your business, please email our Head of Healthcare Justin Crowther at
[email protected] or call +44 (0) 115 957 8230.
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