European mid-market firm HgCapital has acquired UK residential care business Paragon Healthcare Group from Duke Street Capital for £322 million (€460 million; $564 million).
Lindsay Dibden, head of HgCapital’s healthcare team, told PEO that Paragon is the largest transaction the firm has carried out to date. The investment was made from its latest vehicle, HgCapital 5, which closed on £950 million last month.
Duke Street Capital and Paragon were advised on the sale by Close Brothers, with legal advice from CMS Cameron McKenna. HgCapital was advised by Merrill Lynch, Linklaters, Deloitte, PricewaterhouseCoopers, Willis, Christie & Co and Pinder Professional and Consultancy Services.
Debt for the transaction was provided by Dresdner Kleinwort Wasserstein.
Duke Street Capital said its exit from Paragon had generated a return of 3.5x its original investment and an IRR of approximately 50 percent. As part of the transaction, the existing management team of Paragon has realised part of its investment while also re-investing alongside HgCapital.
Established in 1988, Paragon now operates over 250 homes with 1,600 beds, 650 of which have been opened since Duke Street’s acquisition. The company provides care and assistance for residents with learning difficulties.
HgCapital’s other investments in healthcare include care specialist Castlebeck, which the firm acquired in 2002 from 3i for £20 million. Dibden said Hg has since carried out two recapitalisations of Castlebeck which have returned 2.6x the cost of capital.
Dibden said HgCapital has, through its investment in Castlebeck an understanding of the industry, “which is characterised by a marked shortage of supply against demand”.