LCS: Pioneering Advice in the UK Health Care Sector

April 1, 2007

Private equity involvement has revolutionised the healthcare sector.

Government initiatives to attract private investment have been met with record levels of investment from the industry.

Private equity, aside from streamlining operations offered for private tender has, by linking up with real estate investors, pioneered a novel company structure which sees the separation of property and operating companies.

In this feature Corporate UK talks to leading healthcare advisers LCS about the impact of the rise in investment in the sector.

In 2006 private equity investment in the healthcare sector reached a record high. Attracted to the rising government investment and fragmented nature of the European market, investors from across the world invested over £18 billion in the sector last year.

According to figures released by MergerMarket, SDC and UBS annual deal values in the healthcare sector have risen from just over $1 billion in 1995 to $18.05 billion last year.

Deal sizes are also increasing. Whilst the average deal size in 1995 was $389 million, that figure is over $1 billion today.

LCS, both in the UK and Continental Europe, has played an increasing role. LCS is a multi-disciplinary team of senior consultants plus research and support staff , drawn from the fields of professional valuation, chartered accountancy, health economics, corporate banking analysis and health care provider services. 

The firm has been advising on the healthcare sector since its inception in 1995. LCS has been at the forefront of the rise of investment into healthcare.

Over the past five years the firm has been involved in many of the larger transactions in the healthcare sector in the United Kingdom, including the sale(s) of Four Seasons, Priory Hospitals and Westminster Healthcare, the Southern Cross, Castlebeck and Robinia MBOs, and the Capio takeover of Community Hospitals.

LCS has advised many leading financial institutions including, amongst others, Deutsche Bank, UBS, Lehman Brothers, Hermes

Private Equity, Allianz, Three Delta, Lyceum Capital, Doughty Hanson& Co, Macquarie Bank, NM Rothschild & Sons, Goldman Sachs, Barclays Private Equity, Alchemy Partners, Bank of Scotland, PPM Ventures, 3i Group, and many of the leading banks.

Most healthcare businesses are characterised by extensive real estate assets either owned or leased. To strengthen its property valuation offering in line with its clients’ demands, LCS’s sister company LCS Associates has teamed up with Jones Lang LaSalle.

At a time when private equity is under fire for its lack of transparency, success stories are needed to justify the rise of the industry.

Healthcare is one such success story. There is no doubt that private equity’s contribution streamlines a business making it more efficient and profitable.

Paul Saper has little doubt that:

“Private equity involvement is positive for the healthcare sector as a whole. The private equity model has led to greater management focus and the direct involvement with the shareholder has proved to be very effective in driving enhanced performance.

Management has also to ensure the quality of their offering. On exit, the multiples achieved will be increasingly affected by outcomes and quality of care.”

Healthcare has been transformed from a Cinderella industry to a mature business. Traditionally only five or six domestic companies covered 90% of the market. There are now many more large companies operating across Europe in the sector.”

The UK Government expenditure on the NHS has risen from around £32 billion to over £90 billion.

The government recognises the importance of private sector involvement to meet their targets. A lot of new companies have entered the market from the UK and from overseas.  

The development of new and innovative care pathways, the ever increasing emphasis on technology and the rapidly expanding pharmaceutical involvement in healthcare delivery requires private equity to involve firms like LCS with their expertise in the assessment of future potential for all healthcare companies.

The future of the healthcare sector is in public and private co-operation. There is a much better understanding now of the individual components of the healthcare value chain and more appreciation of the relationship between the Real Estate and the operating elements of the business.

Files

• Pages from April 2007.pdf