Healthcare Sector Comment – December 2015

Dato

As the year draws to an end, we have seen UK M&A activity in health and social care drop by 28% compared to last year. It has further slowed down in Q4 especially due to government plans to bring in the national living wage (NLW). There are also talks of other costs impacting operator margins, which include paying for travel time; overnight stays; and providing higher staffing levels to meet Care Quality Commission (CQC) inspection regimes. All of this has brought in uncertainty, delaying and even stopping some vendors taking their business to market. What providers need is clarity and certainty on the above measures, even post the spending review. The news that social funding will be passed on to local authorities provides even more uncertainty, as independent providers cannot see this being off-set by passing costs on to payers. Until care service companies have certainty, we will see delays in any short-term strategic decisions and cautious M&A activity in areas impacted by the NLW.

There is light at the end of the tunnel, however, as several new investors have entered the health and social care market:

  • Stirling Square Capital acquired NFA, a national fostering agency;
  • Aurelius AG acquired Transform, a UK-based cosmetic surgery clinic operator; and
  • Archimed, a dedicated pan-European investor, acquired RehabWorks, a  provider of injury management, preventative and rehabilitation services for employers, insurers and government.

It is worth noting that financial investor’s deal volumes in 2015 have stayed at similar levels to 2014 (with c.25 deals), which means with the high level of investors, there is plenty of cash chasing healthcare assets. New investors who want to make a mark will take a view on certain segments of health and social care and will continue to keep an open mind, but may find certain segments more appealing than those that have been hit hard by the NLW in the short term.

At Clearwater International, we believe residential care and domiciliary care will struggle to attract investor interest in the short term, but those investors already with a platform will continue to make bolt-on acquisitions to fill geographic, local authority and service gaps. The companies who will do well in 2016 will be those who provide:

  • services to blue chip corporates;
  • services to the self-pay consumer market where NLW costs can be passed on;
  • higher acuity care services (that require a skilled force well above the NLW);
  • services to the primary and secondary care segments, where independent providers can support efficiency improvements, e.g.: help NHS trusts reduce elective waiting times and A&E bottle necks; and
  • healthcare IT solutions that manage patient work flow efficiently.

Clearwater International has experience in the care services market and advised Sovereign on the acquisition of Nurse Plus, a provider of staffing solutions and home care services. We also advised on the sale of Cetrea, a leading supplier of healthcare IT within clinical logistics and patient flow management to Getinge-owned Maquet.

 

Health & Social Care

Germany-based residential care home operator Curanum AG – a wholly owned subsidiary of Korian SA – acquired fellow German care home operator Sentivo GmbH for an undisclosed amount.

TeamHealth Holdings Inc., the NYSE-listed hospital staffing firm, completed its previously announced acquisition of US acute hospitalist and post-acute care services provider IPC Healthcare Inc., for a consideration of €1.3bn.

Australian listed healthcare services provider Healthscope Ltd acquired The Hunter Valley Private Hospital Pty Ltd, an Australia-based hospital operator, for a consideration of €48m.

Canadian health IT platform operator Ask The Doctor snapped up UK telehealth services provider Patients Connected for an undisclosed amount.

Country Court Care, the UK care home operator, acquired three care homes from LACE Housing, the UK housing association, for an undisclosed amount.

Humana AB acquired Ramlosa Social Utveckling AB, a Sweden-based family care and outpatient services provider, for an undisclosed amount. Based in Sweden, Humana provides assistance services to older people and individuals with functional impairments.

Chase Templeton, the UK medical insurance provider backed by Palatine Private Equity, acquired UK-based Healthcare Solutions, an SME private medical insurance broker, for an undisclosed amount.

 

Medical Equipment & Supplies

BSN Medical GmbH, a Germany-based medical device company, acquired Wright Therapy Products Inc., a US-based medical pneumatic compression pumping devices manufacturer, for an undisclosed amount. BSN engages in the production and supply of wound care, fracture management, physiotherapy, and compression therapy products.

NASDAQ-listed SurModics Inc., a provider of surface modification and in vitro diagnostic technologies to the healthcare industry, acquired Creagh Medical Ltd, an Ireland-based developer and manufacturer of percutaneous transluminal angioplasty (PTA) balloon catheters, for a consideration of €18m.

Irish medical technology giant Medtronic Inc. acquired UK-based Aircraft Medical, a company engaged in manufacturing video laryngoscopes and other hand held medical devices, for a consideration of €103m.

Vector Capital, the US-based private equity firm, acquired US-based Freedom Scientific and Netherlands-based Optelec for undisclosed amounts. Both companies are leading providers of assistive technology solutions for the visually impaired. Vector Capital subsequently merged the two companies, creating the world’s largest assistive technology provider for the visually impaired.

NYSE-listed ResMed Inc., a manufacturer of medical equipment for the diagnosis and treatment of sleep-disordered breathing and other respiratory disorders, acquired Denmark-based Maribo Medico A/S, a company specialising in the education, diagnosis, treatment and management of sleep-disordered breathing and respiratory diseases. Clearwater International advised Maribo Medico on this transaction.

SomnoMed Canada Inc. – a subsidiary of SomnoMed Ltd, the Australia-based producer of devices for the oral treatment of sleep related disorders – acquired the business of Strong Dental for a consideration of €0.4m. Strong Dental develops and manufactures a dental sleep appliance for the treatment of snoring and obstructive sleep apnea levels.

 

Pharma & Biotech

Lannett Company Inc. acquired US-based generic pharmaceuticals manufacturer Kremers Urban Pharmaceuticals Inc., for a consideration of €1.1bn. NYSE-listed Lannett develops, manufactures, packages, markets, and distributes generic versions of branded pharmaceutical products.

Mylan Laboratories – the India-based subsidiary of Mylan Inc., the global generic and speciality pharmaceuticals company – acquired certain women’s healthcare businesses – known as Jai Pharma Ltd – from Famy Care, an India-based oral contraceptive manufacturer, for a consideration of €533m.

Synerlab SA, the France-based developer and manufacturer of pharmaceuticals, dietetics, veterinary products, and food supplements, acquired Spain-based pharmaceutical products manufacturer Laboratorios ALCALA FARMA, SL for an undisclosed amount.

US-based early stage contract research organisation Charles River Laboratories International Inc. acquired Germany-based contract oncology research services provider Oncotest GmbH, for a consideration of €36m.

NYSE-listed animal health company Zoetis Inc. acquired Pharmaq Holding AS, a Norway-based aquatic vaccines developer, for a consideration of €694m.

AmerisourceBergen Corporation acquired PharMEDium Healthcare Holdings Inc., a US-based provider of outsourced compounded sterile preparations, for a consideration of €2.7bn. AmerisourceBergen sources and distributes pharmaceutical products to healthcare providers, pharmaceutical and biotech manufacturers, and specialty drug patients.