West Private Equity latest into healthcare

Appetite for UK healthcare transactions shows little sign of waning with West Private Equity’s £84m deal for Southern Cross taking the recent total invested in the sector close to £1bn.

West Private Equity has become the latest UK mid-market firm to move into the healthcare sector with the management-backed acquisition of Southern Cross, the UK’s third-largest residential care provider.

The UK firm has teamed up with Southern Cross management to acquire the business from private owners for approximately £45m plus a refinancing of £35m of debt financing. The equity component of the deal totalled £33m with the remaining £51m being provided as debt from Royal Bank of Scotland and Barclays.

SCH is the third largest care provider in the UK residential long-term care market for the elderly. Following its acquisition of Trinity Care plc, an AIM listed Company in February 2002, it now owns and operates 139 care homes with over 7,600 beds.

Philip Buscombe, West Private Equity CEO, attributes the growing interest in the sector to a number of factors, not least the growing call for high quality care. “In addition to the changing demographic, there is a growing aspiration for quality elderly healthcare. The quality operators are likely to increase market share as the sector evolves.”

Suggesting that there are other valuable segments to the sector besides elderly care, Buscombe says the strategy for Southern Cross will be to double the company’s turnover in the next three to five years by shifting the focus towards specialist treatment away from its more traditional elderly care strategy.

The deal takes the total value of healthcare-related private equity investment in the past three months to just below the £1bn mark. Both mid-market and larger buyout firms have shown a taste for what many believe will be a major growth sector in the UK. 3i and Doughty Hanson have between them completed deals of around £500m in the since May, whilst HgCapital, Barclays Private Equity and Soveriegn Capital are among an active group of mid-market players.

Buscombe said that despite the growing interest in the sector, West Private Equity had secured a good price for the business. “We acquired SHC at 6.5 times EBITDA, which, although possibly higher than the five you might pay for a single home business, is still reasonable and below the seven to eight times valuations at which some transactions have been completed. All sides are pleased with the deal.”