Healthcare 2020 Q1 M&A Round-up
M&A activity in the healthcare sector has had a slow start to 2020, with first quarter activity tapering off in March. AHCF research showed that the number of disclosed transactions decreased significantly from 17 in January, to 8 each in February and March. Part of the decline can be attributed to the COVID-19 pandemic gaining traction and causing panic in the financial markets, although this was offset in part by telegraphed changes to entrepreneurs relief encouraging entrepreneurs to sell their businesses before the 11th March budget. The full impact of COVID-19 has not been reflected in these deal volumes, and if the economic consequences are as sharp as the recent market selloff the healthcare deals we will witness going forward will shift away from manicured M&A processes to more opportunistic/distressed deals. Whilst healthcare is considered a defensive sector from an investment perspective, the impact across the subsectors will vary. Verticals such as mental health, digital health and diagnostics appear to be well placed whilst care providers and businesses who provide elective procedures will have more of a challenge.
The care services sector recorded the highest number of deals in Q1 2020. Interest in the sector has stemmed from REITs’ desire for care homes, which is fuelled by the allure of stable cashflows from long-term leases and opportunity to benefit from the UK’s aging population and the structural change that comes with it. Noteworthy transactions observed in the first quarter of 2020 include the acquisition of 5 care homes from Aedifica, the Belgium-based REIT, for c.£60m. Aedifica are looking to increase their presence in the UK, building on their acquisition of 93 care homes in January 2019. Elevation Healthcare Properties and the TLC Group Limited have made multiple transactions in the first quarter of 2020. Target Healthcare REIT acquired a new development site in Cheshire for c.£9.7m, as well as finishing the development of a 55-bed care home in Birkdale. Continuous use of the funds attained through an oversubscribed capital raise in September, is aiding in strengthening the company’s market presence.
New York listed REIT, Medical Properties Fund, advanced its position in the UK healthcare market by acquiring 30 hospitals for c.£1.5bn. These facilities will be leased back to affiliates of BMI Healthcare. The lease agreements are expected to provide a GAAP-basis yield of 8.9%. The acquisition and leaseback nature of this transaction is consistent with the nature of REIT transactions seen elsewhere in the healthcare industry.
The Pharmaceuticals sector saw Abcam Plc the listed producer, distributor and seller of protein research tools, acquiring TGR BioSciences Pty Ltd. and Expedeon Ltd. for c.£103m. This will grant Abcam Plc access to a range of conjugation technologies and products, placing the company well to supply the growing demand for antibody conjugation and multiplexing solutions. This is another example of companies in the medical sector adopting and implementing technology to improve efficiency and optimise operations, a trend we are likely to continue seeing into the foreseeable future.
In the medical equipment sector, Recipharm AB completed its acquisition of Consort Medical plc, a UK based integrated drug and delivery device company, for c.£627m. Through horizontal integration, Recipharm AB increase their competitive position in the industry and now offer more services in the same value chain. This transaction is in line with the common trend of consolidation in the contract development and manufacturing organisation (CDMO) sector. The sector is highly attractive as pharmaceutical companies are strategically outsourcing non-core activities to reduce costs in a capital-intensive industry.
In other sectors of the UK health market: London-based safety and regulatory compliance company Marlowe PLC has acquired Managed Occupational Health (MOH) for c.£3m. The acquisition will help Marlowe take a further step in building its broad spectrum of regulated compliance services. The acquisition offers synergies with Marlowe’s existing Health, Safety and Compliance businesses.
Education 2020 Q1 M&A Round-up
AHCF recorded 26 education transactions in the first quarter of 2020. Whilst M&A activity in the first quarter of 2020 is in line with what was seen the first quarter of 2019 we'd expect non-distressed deal volumes to taper off significantly in Q2 & 3 as the sector gets to grips with the impact of COVID-19. Whilst it is early to assess the impact of the virus on the education sector, there will likely be clear winners and losers, with the former being those who are able to provide distance learning, whilst businesses that rely on face to face teaching, and international travel will be harder hit.
Of the deals in Q1, private and trade buyers accounted for more than half of the transactions. Activity in the market was spread between international and local companies, with UK companies accounting for 58% of the transactions. This is a slight decline from the 69% the UK companies occupied in the first quarter of 2019.
Training saw a substantial PE investment in the first quarter. Agilitas Private Equity LLP acquired Learning Curve Group Limited for c.£125m. QinetiQ Group Plc, the multinational defence technology company acquired, Newman & Spurr Consultancy Ltd. for c.£14m. The acquisition was a strategy-led acquisition, enhancing the group’s capability in areas such as modelling and simulation, synthetic environments and operational analysis.
Education technology attracted attention from PE backed firm Juniper Education. The company acquired both Prime Principle and Maze Education in January. The acquisitions expand Juniper Education’s portfolio of software and services to monitor pupils’ progress. The listed Australian company, Study Group entered the UK education market by acquiring the sector-leading learning experience platform developer Insendi. Study Group sees Insendi as an attractive opportunity to expand their service offerings in online, blended and international education.
The student housing sector played witness to the UK’s largest private real estate transaction to date. Blackstone has acquired IQ Student housing for a record c.£4.7bn. Blackstone is backing the UK’s ability to attract more international students post Brexit. The UK government announced last year that its goal is to increase the number of international students by a third. This is an attempt to boost income generated by education exports to £35bn. Education export include: tuition fees, transnational education and other various sources of income from international students. Further, Dukes Education, who is owned by the PE firm Foundation Investment Partners, expanded their reach in the UK schools’ sector by acquiring House Schools Group.