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The top five healthcare moves and deals of 2016

Despite the political and economic uncertainty of 2016, the healthcare sector has remained strong over the last 12 months. An ageing population, improved diagnosis and an ever-changing world of assistive and diagnostic technologies have all ensured the sector’s appeal to investors.

Furthermore, a weaker currency prompted by the Brexit vote has made UK deal opportunities more attractive for overseas buyers from countries including China, the US, Australia and South Africa. This increase in demand for UK healthcare targets has, in turn, fuelled activity and valuation. At Adam Street Advisers, they are highly optimistic that the UK healthcare market will continue to show strong merger and acquisition activity in 2017.

Here, we take a look back at the most significant moves and deals of 2016 and what they might mean for the sector.

Acadia Healthcare acquires the Priory Group

2016 began with the acquisition of the Priory Group by US-based Acadia Healthcare for over £1.45 billion. The group cares for over 30,000 people in the UK and was a significant win for Acadia, which also acquired Priory’s main competitor, Partnerships In Care, back in 2014 for £349 million.

Both acquisitions resulted in Acadia becoming the largest private provider of psychiatric and mental health facilities in the UK, a monopoly that could have affected the NHS and local authorities significantly. To settle competition concerns, Acadia was instructed to sell 222 hospitals by the Competition and Markets Authority for a sum of £320 million.

Lone Star acquires Quercus Healthcare

In the fourth quarter of 2016 real estate investor Lone Star acquired over 70 of Quercus’ care home assets. This was a relatively predictable move following the company’s 2014 acquisition of Quintain, which already owned an 11.8 per cent interest in Quercus.

Despite being a relatively late entrant to the UK healthcare real estate sector behind the like of Omega Healthcare, HCP and Welltower, this acquisition solidifies Lone Star’s position as a key player in the market. Its substantial balance sheet of over $70 billion assets under management will also create significant competition among the smaller specialist real estate investors.

Bupa’s acquisition of Oasis Dental Care

Bupa is currently in the process of buying Bridgepoint-backed Oasis Dental Care for £835 million, in one of the highest value dental transactions of the year.

According to Companies House, for the year ending March 2016 Oasis turned over £275 million with earnings before interest, tax, depreciation, and amortisation (ebitda) of £34 million – this would suggest an EV/ebitda of 24 times historic earnings. This deal will make Bupa the leading provider of dental services in the UK with over 400 centres servicing more than two million customers.   

Omega Healthcare

In 2015 Omega Healthcare made significant inroads into the UK healthcare sector with the acquisition of Healthcare Homes, the care and support provider previously owned by private equity investor Bowmark Capital.

Since this initial investment, Omega has acquired a further portfolio of 10 care homes for £84 million as well as a portfolio from Abbey Care Homes in April 2016. As specialist healthcare investors, Omega has committed over $8.8 billion (£7.1 billion) for over 1,000 facilities in the US and UK. This has solidified its position as one of the dominant specialist healthcare investors globally.

Mitie Group to exit the healthcare market

In a significant but not wholly unexpected move, Mitie Group, the British outsourcing company, announced it would be withdrawing from the healthcare market, effectively writing down its £128 million investment in the sector to zero.

Cuts in government funding, the introduction of the living wage and ever-increasing operational costs were largely to blame for the company’s failure, and its exit is likely to be felt throughout the market. In previous years, smaller equity investors with domiciliary assets who were looking for a way out of the market may have looked to bigger players such as Mitie as a potential exit strategy. This avenue is now no longer feasible.

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The top five healthcare moves and deals of 2016

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