Graphite makes 2.7x return in 20 months from retirement homes

UK mid-market buyout firm Graphite Capital’s sale of nursing home Avery Healthcare to Southern Cross Healthcare Group achieved a 2.7 times return on its initial investment in 20 months. Graphite will also keep five care homes to begin another company with Avery’s management.

UK mid-market buyout firm Graphite Capital has sold retirement home manager Avery Healthcare to Southern Cross Healthcare Group for £96.5 million (€142.5 million, $192 million).  Southern Cross is buying 16 of Avery’s 21 care homes and is also acquiring the management team’s shareholding.

The sale has generated a return of 2.7 times Graphite’s initial investment in 20 months. The firm was unable to provide the IRR on the deal because its decision to keep five of the homes complicated the calculations.

Graphite is retaining Avery’s management team which it is backing with £22 million of additional equity to start another company, Optimum Healthcare. RBS has provided a debt facility to fund the company’s growth.

In October 2005 Graphite gave development capital to managing director John Strowbridge and commercial director Ian Matthews to begin building Avery as a care homes company.
Accordinf to Simon ffitch from Graphite: “We only bought those buildings that were modern developments because the sector is highly fragmented and a sale and leaseback strategy is easier with homes which can be priced using a yield valuation rather than a profit valuation.“ Modern buildings also attract lucrative government pay rates for the high proportion of the population that receive government subsidies, he added.  

He said the high rate of return was largely due to the quality of the management, especially Strowbridge, who he described as a “thoughtful entrepreneur”.

Southern Cross Healthcare is Britain’s largest provider of nursing homes. It was owned by The Blackstone Group which raised £200 million through the sale of half its 88 percent stake in an initial public offering in July last year. It subsequently sold its remaining stake for undisclosed sums in January and March of this year.

According to ffitch, Southern Cross was better placed than Graphite to employ the sale and leaseback a strategy which it uses on all its deals.

Graphite manages more than £1.2 billion through three private funds and the publicly listed Graphite Enterprise Trust. It invests between £20 million to £200 million. Graphite has also had stakes in the following nursing companies Kingsclear Homes and Ridgmont Care Homes which it has exited for undisclosed sums.

Graphite also bought UK oil and gas company Dominion Technology Gases from founder Gareth Jones for an undisclosed sum earlier this week. A source close to the deal said it was valued at above £30 million.