Healthcare Sector M&A

M&A activity within the healthcare and medical device industry has remained lively, despite the uncertainty caused by the troubled passage of the Health & Social Care Bill. Recent transactions such as:

highlight a number of key trends that are driving the industry forward.

Firstly, investors are attracted to the sector.

They continue to regard it as profitable and growing, and think it offers attractive returns. This is reflected in the sector’s resilient share price performance. In 2011 the FTSE All Share Healthcare Index increased by 8%, compared to a 3% decrease in the FTSE All Share Index. Private equity houses have also continued to deploy capital in the sector.

Banks are also looking favourably on the healthcare market, and view it as more robust than wider economy.

However, this appetite may be tested by the amount of debt coming due for refinance over the next few months. With vast amounts of debt from 2005-7 transactions now approaching maturity, many companies are now seeking to refinance – such Raphael Healthcare which recently completed a £9.1m refinancing exercise and Nuffield Health’s £270m refinancing deal.

Care firms like Barchester Healthcare and CareTech are this year engaged in refinancing talks, while next year, General Healthcare Group (GHG), the country’s biggest private hospital operator will have to find a solution for most of its £2.3bn debt.

Meanwhile, international strategic acquirers are also demonstrating interest in the sector. Here at Livingstone we have seen significant interest from overseas acquirers, particularly Indian buyers who are looking to gain a presence in Europe.

Finally, valuation metrics have remained stable after the inevitable decline in valuations immediately following the economic downturn,the median transaction multiples have remained relatively consistent at around 8.0x EBITDA over recent years (although the average has shown a decline from around 12x in 2009 to 8x this YTD, as valuations at the top end have been compressed.


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