Hg Capital in healthcare secondary buyout

The European private equity provider has acquired Castlebeck Care from 3i in a £50m transaction.

3i has completed the sale of Castlebeck Care Holdings to HgCapital for £50m. Castlebeck Care provides residential healthcare for adults with learning difficulties and challenging behaviours. Four members of the existing management team and have also invested.

3i originally invested £5m in the Castlebank buyout, led by Brian Stevens and Kevin Davis in 1998. The business has since grown, with turnover increasing from £4.9m to £10m. Brian Stevens and Kevin Davis have also realised their investment. Mezzanine and debt financing for the transaction was provided by Bank of Scotland Structured Finance in Newcastle, led by John Stirzaker.

The deal is 3i’s second secondary deal in as many weeks. Bank of Scotland led a £15m management buyout of Wimpy from 3i, Bridgepoint Capital and Lloyds TSB Development Capital.

The secondary market is rapidly becoming a key area of activity for private equity firms as traditional exit options diminish. Last week, French LBO house PAI acquired textile rental company Elis in a E1.5bn deal from BC Partners.

HgCapital, which until 2001 was known as Mercury Private Equity, has made a number of major investments in the healthcare sector. In early 2001, the firm sold its interest in Priory Healthcare, the independent specialist mental healthcare provider, for £100m to Westminster Health Care. Mercury Private Equity provided clients with a return of 1.3 times their original investment. In May Doughty Hanson recently acquired Priory Healthcare from Westminster Health Care for £288m.