An ageing population and significant public funding pressures means that the private sector is becoming more involved in delivering healthcare services. Our Autumn 2012 Healthcare Services industry sector note outlines key issues and pressures within the healthcare services supply chain and analyses the impact on M&A.

1. Healthcare Services Sector
M&A update
Autumn 2012
£20 billion opportunity ahead for the private sector
An ageing population and significant public funding
pressures means that the private sector is becoming more
involved in delivering healthcare services. This is leading
to increased M&A activity.
Key observations
Trade buyers have renewed capacity for acquisitions. Stronger
balance sheets are allowing management teams to refocus on growth and,
with shareholders now more willing to sell than in 2009-2011, this is leading
to an increase in M&A. The deal process can be lengthy, complex and due “The fundamentals in healthcare
diligence potentially extensive. However, with the right preparation, services are strong and there is a
vendors can achieve fair valuations and complete transactions. real opportunity in primary and
Mid-market and specialist private equity houses continue to invest. secondary care for private
The private healthcare sector, a large element of which is owned by private providers”
equity, dominates delivery of the highly fragmented specialist and domiciliary
Justin Crowther, Director
care sector. Private equity continues to grow businesses in these sectors
whilst also looking for new platforms.
Overseas institutional investors are acquiring UK assets.
Leading pension funds are attracted to healthcare businesses that have
scale and stable cash flows, as demonstrated by Ontario Municipal
Employees Retirement System’s acquisition of Lifeways from August Equity.
Significant opportunity for the private sector in primary and
secondary care. The introduction of GP commissioning and interest in
healthcare models offering alternatives to hospital care will require a higher
proportion of services to be delivered by the private sector. The markets for
these services are estimated to be worth around £20 billion.
Catalyst Corporate Finance LLP 2012
Landmark contracts awarded to Circle, Virgin Care and Serco demonstrates
increasing recognition from the public sector that leveraging the private
sector’s ability to invest capital and use more efficient delivery models is
necessary for the government to reduce costs while improving the quality
of healthcare.

2. Healthcare Services Sector M&A update
Trade buyers need to M&A activity
Guidance on the deal
grow market share increasing process: be prepared
Acquisitions back on the
Our experience of acting for both
strategic agenda
buyers and sellers in the healthcare
Deal activity, especially amongst larger sector is that the deal process can be
corporates, has picked up since mid-2011. lengthy and due diligence potentially
With balance sheets repaired, equity extensive and complex. Vendors need
positions reset or restructuring transactions to ensure they are well prepared. Key
completed, management teams are now areas to focus on include:
able to focus on growth and acquisitions
Developing a detailed understanding
are back on their agendas.
of historical and future financial
Notable recent deals include Voyage performance
Healthcare’s acquisition of Solor Care
Understanding and presenting
and Saga’s acquisitions of Allied and
appropriate KPIs
Nestor. Saga is now the largest
domiciliary care provider in the UK. Understanding property and lease
Other operators such as Four Seasons agreements
and Care UK now have the resources
and desire to expand their offering, Reviewing compliance history,
as illustrated by Care UK’s recent policies and procedures
acquisition of Whitwood Care.
Understanding and presenting key
Acquisition drivers include market share customer relationships,
growth and expansion from a regional opportunities and fee discussions
to a national offering. Healthcare
Demonstrating quality of outcomes
services markets remain highly
fragmented, especially the specialist
and domiciliary care market. For
High level of private equity and
example, post the acquisition of Solor
institutional investor interest
Care, Voyage Healthcare will have a
market share of around just two per Private equity investors continue to invest in
cent. Acquisitions also allow operators the sector convinced by its strong long-term
to protect margins through economies dynamics, especially the homecare/
of scale. domiciliary sector. Since 2009, 40% of
overall transactions have been in this asset
Buyers are looking for evidence of
lite sector (see Figure 1).
resilient trading, robust internal systems
and compliance, and are focusing on For those businesses that can deliver
the viability of forward forecasts and exceptional outcomes for users of services
strength of customer relationships. whilst implementing efficiencies and being
competitive on costs, there are
The number of businesses embarking
opportunities to create scalable and
PE attracted to on sales processes has increased in
valuable businesses across the sector.
Catalyst Corporate Finance LLP 2012
2012. Private vendors are more
sector’s long-term predisposed to selling than in 2009-
Activity has been led by three types of
investors:
dynamics 2011. Some have moderated their
price expectations and recognise that Sector focused houses which continue
valuations of 6-8x EBITDA represent to invest in new platforms while
sensible value. consolidating existing ones. August
Equity-backed Enara have made a
series of multiple bolt-on acquisitions to
2

3. Healthcare Services Sector M&A update
help it become one of the largest
providers of domiciliary care in the Institutional investors
South of England. ISIS Private Equity “Managing healthcare services
has acquired Independent Community businesses is all about focusing on attracted to strong
Care Management. These deals are the detail, creating strong teams cash flows
less reliant on bank funding, which
and having best-in-class
historically have leveraged property-
backed assets. procedures. We turned around an
underperforming business and
Mid-market funds acquiring maturing there was a strategic logic to the
platforms such as Graphite Capital’s
acquisition of National Fostering Agency
deal with Voyage”
from Sovereign, or investing in sizeable Kit Doleman, Ex-Chief executive, Solor Care
businesses with strong market
positions, for example, Advent’s
combination of Craegmoor and Private equity investors looking
The Priory Group. for exit opportunities PE-backed exit
Large UK and overseas institutional Over the last three years M&A activity activity to increase
funds are attracted to non-cyclical has returned to the volumes experienced
businesses that have scale and strong between 2002 and 2005 (see Figure 2).
cash flows. For example, Bridgepoint’s We expect the number of exits to
acquisition of Care UK, Canadian accelerate as investors take advantage
pension fund Ontario Teachers’ of the more favourable M&A environment
Pension Plan’s acquisition of Acorn to bring investments made pre-2010 to
and OMERS’ acquisition of Lifeways market.
from August Equity.
The public markets remain difficult for
healthcare service businesses. Perceived
reputational risk (heightened by the
Southern Cross implosion) has deterred
investors. We do not see this lack of
appetite changing in the short to
medium term.
Figure 1: Over 40% of M&A since Figure 2: Activity is returning to
2009 has been in the domiciliary pre-downturn levels
care sector UK deal volume since 2002
M&A activity since 2009 by healthcare sector
152
33
138
130
26
24
92
19 18
80
Catalyst Corporate Finance LLP 2012
16
76
14 68
63 61
11 11
9 45
8
7
6 6
40
5
4 4 4
3 3 3 3 3
2 2 2 2
1
YTD 2012*
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2009 2010 2011 YTD 2012*
Primary Care Secondary care Domcare
Elderly Specialist Childcare Other
Source: Corpfin, Catalyst Corporate Finance. Source: Corpfin, Catalyst Corporate Finance.
*August 2012 *August 2012
3

4. Healthcare Services Sector M&A update
Opportunities in Primary and secondary care: the next big
primary care, opportunity for private providers
community health The private sector currently delivers a very
and commissioning small proportion of primary and secondary Figure 3: Private sector should
care (see Figure 3). However, if the increase its share of primary and
government is to manage funding pressures
and achieve improved outcomes for
secondary care by 2020
patients this will need to increase. Proportion of UK public health and social care
The government will need to access the delivered by private sector
capital investment potential of the private Private sector already
dominates delivery
sector and make use of alternative models
100%
Delivery by private sector
of healthcare delivery which focus on the forecast to increase to
80% between 20% and 40%
community and home and away from
60%
hospital care. This is an opportunity for
40%
financial investors to invest in the earliest
20%
stages of this shift.
0%
Primary Acute/ Elderly Domicillary MH & LD
Areas such as primary care, community Care secondary
Care
& PD
health services and commissioning support % delivered by private sector today % delivered by private sector 2020
services are potentially worth billions of
pounds: Source: Department of Health, Catalyst
Corporate Finance
Primary care: The NHS spent £8.3
billion on GP services in England in
2009-2010, currently dominated by
small general practices. However,
operators such as multi-practice groups
like The Practice or Virgin Care are
growing and private providers are
estimated to be generating annual
revenues of £185 million, currently
2.2% of the addressable market.*
Nevertheless, there are significant
challenges to increased penetration,
fundamentally around ownership “Since 2006 we have treated two
structure and access to pension and a half million NHS patients,
entitlements. offering improved accessibility,
Community Health Services: Moving
convenience and most importantly
Private sector secondary healthcare services into delivering improved health
starting to deliver community-based settings is estimated outcomes - providing good value
to be worth £8-£8.5 billion in England.* for the NHS”
secondary We believe the private sector could
Bart Johnson, Chief executive, Virgin Care
deliver up to 20%, or around £2 billion,
healthcare services
Catalyst Corporate Finance LLP 2012
by 2020.
Signs that the private sector is being
recognised as capable of delivering Other specialist services like pathology
services in this area are apparent with are also in focus. South West Pathology
major contract wins by Circle, Virgin Services (the joint venture between Taunton
Care and Serco worth over £700 million and Somerset and Yeovil NHS Foundation
(see Figure 4). Trusts and Integrated Pathology
4

5. Healthcare Services Sector M&A update
Partnerships, founded by Sodexo and
Labco) and NHS Midlands and East’s Locally-accessible
tender for a five-year £500 million contract
which is open to private providers, are
specialist services to
examples of the restructuring of pathology grow significantly
services into efficient, scalable networks.
Commissioning support services:
From April 2013, Clinical
Commissioning Groups (CCGs) will
assume responsibility for £80 billion “Reforms across the NHS combined
of NHS services in England and will with the need for greater efficiencies
start buying commissioning support
represent increased opportunities for
services worth an estimated
£1.3 billion.* the private sector to provide more
NHS funded services. The desire to
With further regulation and guidance move services from acute hospitals
relating to commissioning expected over
the coming months, the impact of the
into the community (often linked with
Health & Social Care Act on procurement, using the Any Qualified Provider
delivery channels and models is unclear. model), increased use of the private
Nevertheless, the role of the private sector sector in joint ventures/outsourcing
is increasing. If this is combined with the
removal of barriers to higher participation,
for services such as pathology
such as in primary care removing practice and the potential to provide
boundaries and goodwill on GP practices, commissioning support services to
investment would be boosted and the CCGs are just some examples”
opportunity for the private sector to build
Robert Breedon, Partner, Wragge & Co
business with scale will be considerable.
Figure 4: Private and public sectors working together: major healthcare contracts
have been awarded to the private sector during 2012
In February 2012 Circle became the first ever non-state Circle has reported productivity gains and increased
provider to deliver a full range of NHS district general patient satisfaction at Hinchingbrooke and the
hospital services as part of a ten-year contract to run day-surgery hospitals it operates in Nottingham.
Hinchingbrooke Healthcare NHS Trust. However, this business model is young and yet to
show evidence of profit generation.
Hinchingbrooke staff will continue to be employed
by the NHS, retaining their NHS terms and conditions
including their NHS pension.
In March 2012 Richard Branson’s Virgin Care was awarded Virgin Care under the agreement and retained their
a £500 million five-year contract by NHS Surrey to deliver employment terms and conditions, including access to the
Catalyst Corporate Finance LLP 2012
community health services in South West and North West NHS pension scheme. Virgin Care is the preferred bidder for
Surrey, and other services (such as sexual and prison a £130 million contract to provide a range of core NHS and
health) across Surrey. Some 2,500 staff transferred to social care services for children in Devon.
In March 2012 Serco was awarded a three-year £140 for supplying to the public sector to take advantage of the
million contract to provide community health services for opportunity to expand into the healthcare services market.
NHS Suffolk. Serco is an example of a company from a Staff will transfer to Serco under TUPE and should remain
different sector (facilities management) using its reputation in the NHS pension scheme.
* Source: Laing & Buisson Primary Care and Out of Hospital Services UK Market Report 2011/12
5

6. Healthcare Services Sector M&A update
M&A activity will Prospects for M&A: our predictions
remain buoyant The dynamics discussed above mean that the sector is positioned for further
M&A during the next 18 months.
Specifically, we expect to see:
Further investment from private equity. This will focus on new platforms
and existing portfolio investments.
The pace of exits increasing. Driven by platform investments made before 2010
seeking exits, vendors’ moderated price expectations and corporate acquirers
returning to the market.
Businesses from other sectors will look to enter the market. Companies from
sectors such as facilities management will try to enter or further penetrate the market.
This means private vendors will have more exit options available to them.
Limited funding appetite from banks. Banks will remain cautious
throughout 2012 and into 2013.
M&A activity in primary and secondary care. Increased delivery of services by
the private sector will lead to M&A in these sectors over the medium to long-term.
The depth of reform initiated by the Health & Social Care Act has created a difficult
backdrop for M&A. Nevertheless, it is clear that private providers will achieve a greater
share of publicly-funded healthcare services. Further promotion by the government of the
alternative models used by the private sector, combined with the removal of regulatory
barriers to the sector’s increasing participation will create a positive environment for
ongoing consolidation and M&A across the healthcare services sector.
Contact us
Catalyst Corporate Finance has an experienced team of healthcare experts led by Justin Crowther. If you would
like to discuss this report in more detail or the opportunities for your business, call +44 (0) 121 654 5000.
Andy Currie, Managing Partner Justin Crowther, Director
Andy is Managing Partner at Catalyst. His chief Justin is a Director at Catalyst and has over
responsibilities include advising on MBOs, fund ten years’ corporate finance experience. His
raising, company acquisitions and disposals, as main responsibilities include advising on MBOs,
well as directing Catalyst’s day-to-day operations fund raising, company acquisitions and
and developing the firm’s strategy. Andy has disposals. Justin leads our global healthcare
transacted across multiple sectors including the sector team and is an expert in the healthcare
healthcare sector. services sector.
Catalyst Corporate Finance LLP 2012
Zachary Tsai, Principal
Zac is a Principal at Catalyst and has over six
years’ experience in M&A. His main responsibilities
include advising on MBOs, fund raising, company
acquisitions and disposals. A key member of the
Healthcare sector team, Zac specialises in the
UK and international pharmaceuticals market.
6

7. Healthcare Services Sector M&A update
Figure 5: Selected recent healthcare services M&A transactions
Date Bidder Target Target Product Line Deal Value
(£m)
Provides residential care facilities specialising in
Aug-12 Care UK (UK) Whitwood Care Ltd (UK) n/d
assisting those with learning disabilities
Provides domicilary care services to the elderly, those
Aug-12 City and County Healthcare (UK) Help at Home (UK) n/d
with autism, mental health needs and sensory impairment
Provides carers and nurses to nursing and
Aug-12 Sevacare Holdings (UK) Prompt Care Ltd (UK) n/d
residential homes
Provides residential care homes and schools for
Jul-12 NBGI Private Equity (UK) Horizon Care Ltd (UK) n/d
children with emotional and behavioural needs
Jun-12 OMERS Private Equity (UK) Lifeways Community Care (UK) Provider of community care services n/d
Provider of risk assessment services to the life
May-12 Capita (UK) Medicals Direct (UK) 15.2
insurance industry
Apr-12 Terra Firma Capital Partners (UK) Four Seasons Healthcare (UK) Provider of elderly and specialist care 825.0
Provider of care and support to people with
Apr-12 Voyage Care (UK) Solor Care Group (UK) n/d
complex needs
Mar-12 Synergy Health (UK) Leoni Studer Hard (CH) Outsource healthcare equipment services 39.7
Feb-12 Doughty Hanson (UK) United Surgical Partners Operator of private hospitals 295.0
Europe (Esp)
Healthcare At Home (majority Provider of acute medical treatments in
Feb-12 Vitruvian Partners (UK) 40.0
stake) (UK) residential locations
Provides foster placements and services for local
Jan-12 Graphite Capital (UK) National Fostering Agency (UK) 135.0*
authorities
Independent Vetcare (August
Dec-11 Berry House vetinary practice (UK) Provides veterinary services n/d
Private Equity) (UK)
Independent Community Care Provides specialist home care for people with
Nov-11 ISIS Private Equity (UK) n/d
Management (UK) long-term conditions
Allied Healthcare International Profesisonal staffing services to the health and
Oct-11 Saga Group (UK) 107.0
(USA) social care industries
Provides residential and foster care to children
Sep-11 Advanced Childcare (UK) Clifford House Ltd (UK) 10.0
emotional and behavioural needs
Aug-11 Fostering Solutions (UK) Pathway Care Group Ltd (UK) Provider of fostering services n/d
BUPA Spain, subsidiary Centro Internacional de Medicina
Jun-11 Provides medical services 18.6
of BUPA UK Avanzada SA (Esp)
Apr-11 Priory Group (UK) Craegmoor Group Ltd (UK) Provides long term care facilities 330.0
Provides specialist care and education to children
Mar-11 GI Partners (UK) Advanced Childcare Ltd (UK) 28.0
with emotional and behavioural needs
Mar-11 Advent International (USA) Priory Group (UK) Provider of acute health and rehabilitation services 925.0
Provider of healthcare staff to prisons and other
Feb-11 Saga Group (UK) Nestor Healthcare Group (UK) 133.0
secure units
Jan-11 Associated Dental Practices (backed 450.0*
Integrated Dental Holdings (UK) Owners and operators of dental practices
by Carlyle and Palamon) (UK)
Independent Clinical Services
Nov-10 Pulse Staffing (UK) Provides healthcare staffing solutions 75.0*
(backed by Blackstone) (UK)
Jul-10 Four Seasons (UK) Care Principles Specialist care provider n/d
Jun-10 General Healthcare Group (UK) Transform Medical Group (UK) Provides cosmetic surgery and related procedures n/d
May-10 General Healthcare Group (UK) Abbey Hospitals (UK) Provides healthcare services from four 70.0
Catalyst Corporate Finance LLP 2012
private hospitals
Apr-10 Bridgepoint Capital (UK) Care UK (UK) Provides specialist health and social care services 281.0
Mar-10 Virgin Healthcare Holdings (UK) Assura Medical (UK) Provides primary care services 4.0
Feb-10 Mears Group (UK) Supporta (UK) Provides domiciliary care services 27.2
Jan-10 Teachers Private Capital (UK) Acorn Care and Education (UK) Provides specialist care and education for children n/d
Source: Catalyst Corporate Finance
7

8. Selected recent Catalyst Corporate Finance deals
Lead adviser on sale to Lead adviser on sale to Lead adviser on sale to
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