Based on NCF analysis, the headline numbers show that M&A in the UK healthcare sector tapered slightly in 2018 with the number of transactions falling to 162 inbound investments from 185 in the previous year. That said, highly fragmented markets continue to be consolidated across multiple sectors, particularly care services like specialist and elderly care, as well as medical equipment verticals. Well-funded financial investors are still showing an appetite for new platforms while larger corporates are continuing to make acquisitions to increase scale.
Based on NCF research, the number of deals involving overseas buyers totalled 54 in 2018, a significant increase from the 30 deals in 2017. This can be largely attributed to an increase in interest from US buyers, likely a result of the strengthening US dollar. The number of European buyers has also remained strong, which is likely to be a result of firms wanting to secure a UK foothold ahead of Brexit.
Noteworthy transactions in the broad care services market include CareTech’s acquisition of Cambian Group for c.£288m, a positive outcome for the sector after investigations into both Cambian and Keys Group children’s homes regarding concerns around staff levels and training. The entry of infrastructure funds into the UK healthcare market also continued in 2018, particularly in the specialist care sector where Australian investor, AMP Capital acquired Regard Group for an undisclosed sum. The UK specialist care market is currently highly fragmented with various transactions forecast in 2019 as the market consolidates. The market is characterised by a large number of small unprofitable operators with increasing regulatory burdens, quality requirements and cost pressures through sleep-ins and the national living wage. [see NCF written piece]
Dentistry also proved a popular focus for investors in 2018. Nordic Capital formed a new pan-European dental group through the acquisition of Hesira Group in February. Core Equity Holdings Limited also acquired an undisclosed stake in Portman Healthcare Limited from Living Bridge LLP, valuing the asset at c.£300m. Notably, August Equity has formed Dental Partners – a group of dental practices serving the NHS and private clients across the UK. The UK dentistry market is seen as a fundamentally attractive market to many financial investors, offering highly resilient and recurring cash flows, with typically low exposure to economic cycles. NCF forecast continued M&A activity in the sector in 2019.
The UK private hospital market was a market hit by cuts, relaxation of rules on waiting times and declines in employer-funded cover but 2018 saw early signs of recovery with overseas capital beginning to flow back from the likes of the Mayo Clinic and Emirati provider, NMC Health, which acquired Hospital Group, Aspen Healthcare, in August. Spire Hospitals, one of the UK’s largest hospital Groups, owning 38 hospitals across the UK, has earmarked £15 million for private market M&A which will aim to grow its private pay revenue by 10% year-on-year, suggesting likely M&A activity in the sector over the year ahead.
In the pharmaceuticals industry, 2018 saw a strong mix of trade and private equity acquirors searching for UK-based drug discovery platforms and research centres. The standout transaction was Novo Nordisk’s acquisition of Ziylo Limited, a UK biotech company specialising in the development of complex treatments for diabetes patients for c.£630m. Ziylo’s innovative technology platform offers the potential to develop glucose responsive insulins, a ground-breaking treatment for diabetes patients worldwide. Deal activity in the sector is expected to continue in the form of bolt on acquisitions and divestments of non-core assets rather than mega deals in 2019.
Healthcare IT and related Medical Technology applications saw significant private equity interest in 2018, driven by a focus on patient data and software aimed at improving patient safety in hospitals and other healthcare facilities. The Clanwilliam Group was particularly active in the sub-sector, acquiring three medical software / Clinical Reporting IT companies in the year - Dictate IT, Obsidian Healthcare Group Limited, and Informatica Systems. NCF expect that the private equity industry will retain its healthy appetite for MedTech and services businesses which support biopharma and speciality clinical laboratories throughout 2019 [See NCF Written Piece].
NCF recorded 74 transactions across education sub-sectors in 2018, a slight decline in activity from the 88 transactions in 2017. EdTech, Nurseries, and Schools/Colleges accounted for the majority of transactions with healthy interest from trade and private equity acquirers alike. Investors outside of the UK accounted for 19 of the transactions noted by NCF, in line with the previous year’s figures.
Nurseries continued to attract trade acquirers in 2018 with 14 transactions completed during the year. Busy Bees, the largest childcare provider in the UK, acquired various nurseries including, Droitwich Spa Nursery and Kindergarten in Worcestershire, and Daisy and Jake Nursery.
Investment in training saw more private equity interest with Palamon Capital, Primary Capital Partners and Palatine Private Equity all acquiring assets in the sector. Notably, Baltic Asset Management disposed of Inzpire Limited, an aviation-focussed training company for £24m after a five-year holding period. NCF forecast that private equity buyers will continue to have cash to deploy in the sector. NCF note that strong liquidity in debt markets is generally improving the market outlook for sellers, especially for high quality staffing businesses operating in sectors with skills shortages.
Ed Tech also proved a highly attractive sector for acquirers with 15 transactions occurring during the year. Interestingly, NCF noted numerous domestic acquisitions rather than cross border M&A activity in the sector. The UK is the leading European country for EdTech venture capital and angel investments. In January Mrs. Wordsmith Limited managed to raise £8m for further expansion from a consortium of growth capital investors, Trustbridge Partners, Reach Capital, and Kindred Ventures. IRIS Software Group also remained active in the sector, acquiring Contact Group, a provider of communication and data services to state and independent schools across the UK, in April 2018.