Bleak prognosis for UK healthcare post-Brexit

Private equity firms are becoming warier of investing in UK healthcare over concerns that Brexit will limit access to much-needed EU labour.

“Healthcare and education have relied quite heavily on EU labour, so the tightening labour market is a big concern,” Mark Salter, managing partner of UK lower mid-market shop Apiary Capital, told Private Equity International. The firm raised £200 million ($257 million; €226 million) for its debut fund in June 2018 to invest across education, healthcare, business and technology services.

“Are you going to pass creeping labour costs on to the ultimate purchaser? If you’re selling to the government maybe not, so we’re wary of any healthcare that could have the government as the end consumer.”

Bowmark Capital, a UK-focused private equity buyout firm, closed its sixth flagship fund at the £600 million target earlier this month after adapting its sector focus in response to Brexit. The firm is “more careful” about investing in healthcare and consumer businesses due to the threat of tightening labour markets, managing partner Charles Ind said.

UK firms invested £418 million into 123 domestic healthcare and biotech companies in 2017, down from £874 million across 122 businesses the previous year, according to the BVCA’s Report on Investment Activity 2017. Their investment into global healthcare however remained broadly level at £2.64 billion, compared with £2.73 billion in 2016.

BVCA members hold stakes in 263 UK healthcare companies, which between them employ 53,834 staff.

EU nationals comprise 9.7 percent of doctors, 6.8 percent of nurses and 5.6 percent of scientific, therapeutic and technical staff in England’s public hospital and community health services, according to a parliamentary report from October. EU nationals fell as a percentage of all NHS joiners in 2017-18 and the proportion of nurses joining from the EU dropped to 8 percent from 19 percent in 2015-16.

A government white paper in January proposed scrapping the current cap on the number of skilled EU workers. The government could however retain the £30,000 salary threshold migrants are required to meet. Paramedic salaries begin at £23,000 and junior doctors at £27,000.

Businesses such as care facilities also tend to rely heavily on low-skilled EU migrant labourers, who could be limited to a 12-month stay with a subsequent 12-month cooling-off period under the white paper proposals.

Some UK private equity firms are more sanguine about Brexit’s impact on healthcare.

“All people in healthcare have had a relatively tough time on recruitment in the recent past because we have very low unemployment rates in the UK,” David Porter, managing partner of UK healthcare investor Apposite Capital, said. The firm’s portfolio includes residential care provider Swanton, domiciliary care provider MC Care and medical products manufacturer OrthoD.

“If Brexit all goes pear-shaped that obviously will change and that might actually be to healthcare’s benefit. If retail fell over even more, construction fell over, the motor industry fell over more, all those things will lead to lower employment and will be helpful for the sector.”