Buyout firms circle £1.5bn Bupa hospital portfolio

A range of private equity firms have expressed interest in UK healthcare business Bupa’s hospital portfolio. The healthcare business is believed to be selling because of regulatory concerns that its hospital business is a conflict of interest with its insurance arm.

The buyout firms Terra Firma and BC Partners are bidding in the auction of 26 hospitals by UK health business BUPA according to sources close to the companies.  Media reports said the price is likely to be around £1.5 billion ($3 billion, €2.2 billion).

A source close to the bidding said: “There is much speculation surrounding the assets because of a review Bupa is carrying out. But it hasn’t confirmed this is the exit route they are going to take, although there is hot competition for the hospitals arm.”

Rival firms Cinven, CVC Capital Partners, PAI Partners and The Blackstone Group are also bidding according to the UK newspaper Financial Times.  

The FT said the bids are currently in the second round and Blackstone, which is in partnership with Ramsay Healthcare of Australia, is unlikely to win the auction because it believes the auction has pushed the hospitals’ price above their real value.

“Bupa is an insurer and provider and both sides may well be able grow faster were they separated”, the source added.  This is because of regulatory constraints from the UK Department of Health and structural concerns as to whether Bupa, as an insurer and a care provider, is the best place for the hospital portfolio. 

When Bupa attempted to buy Community Hospitals at the turn of the millennium it was stopped by UK competition authorities.

Bupa sold nine hospitals to Legal and General Ventures in an £85 million deal in 2005 but it kept back the other 26 hospitals until now.

The health business is not a listed company but it has listed debt so it will formally confirm its decision on the hospitals at a later date.

Hospitals have been a lucrative target for buyout firms in the UK. An Apax Partners-led consortium carried out a sale and leaseback strategy last month, on the UK hospitals of its portfolio company Swedish healthcare provider Capio realising £700 million from the sale.