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13.06.2013, 04:03

High returns drive M&A activity in healthcare services sector

Author: Catalyst Corporate Finance

Catalyst Corporate Finance reveals healthcare services companies are increasingly an acquisition target for FM companies in the United Kingdom.

 

A new report from Catalyst Corporate Finance has revealed that the high-growth and high-margins to be achieved in the healthcare services sector is making these companies a target for key players in the Facilities Management (FM) sector.

“Leading UK facilities management providers MITIE and Interserve have already made significant acquisitions to enter the UK healthcare services market and the healthcare sector should expect further acquisitions by FM buyers,” said Justin Crowther, co-author of the report.

“Healthcare services are a logical strategic fit for FMs as they look for growth opportunities and are attracted to the higher margins and long-term growth on offer in healthcare services. Complementary business models and a common client base mean there is an opportunity for FMs to evolve the delivery of healthcare services by developing integrated services and simplifying procurement,” he explained.

FM is a highly competitive, typically lower margin sector. The pressure to cut costs in the current economic environment means organic growth rates are low and FMs are looking for alternative growth opportunities. While some are targeting the faster growing emerging economies, others are moving from lower to increasingly higher value-added services in their home markets by diversifying into adjacent sectors such as UK healthcare. A key area which is of particular interest to FMs is domiciliary care. According to the report there are a number of factors which are driving this interest which include:

  • Opportunity to increase margins - the sector includes companies with double digit margins
  • Exposure to a growth market - the UK domiciliary care market is worth around £8 billion
  • Opportunity to develop integrated services

 As a result of these factors, there are likely to be further acquisitions in the market by FMs over the next 12 to 24 months. This is likely to be followed by a pause until other providers have achieved sufficient scale to be attractive to large and mid-sized FMs, as the current domiciliary care market is highly fragmented.

Private equity’s (PE) buy and build strategy in the healthcare sector will also provide more opportunities for FMs. PE is a significant investor in healthcare services, especially in the homecare/domiciliary sector, and four of the ten largest providers are currently funded or owned by PE. FMs now have an additional exit route of those PE investors able to build scalable, competitive businesses that can deliver high quality outcomes for users. This will be an additional factor driving the move of FMs into healthcare.

“Now could be the right time for owners of healthcare businesses to consider a sale as currently there is a wider pool of strategic trade acquirers for healthcare businesses. Both Interserve and MITIE will remain acquisitive and will be looking at adjacent services that allow them to grow their healthcare platforms. For example, MITIE has indicated it will look at palliative care, end of life care and other community based care that does not require high clinical qualifications. FMs are however unlikely to acquire assets with a significant property element or capital investment requirement,” concluded Richard Holden, director at Catalyst and co-author of the report.

A copy of the full report is available from the Catalyst website at www.catalystcf.co.uk or via the Downloads link on the right. 

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