Healthcare sector comment – March 2011

Date

March saw Clearwater advise Barclays Private Equity on the £25m sale of Femcare Group Limited to NASDAQ-listed Utah Medical Products Inc. It was another encouraging month for deals in the healthcare sector and interestingly two child residential care businesses were sold by Care UK and Bowmark Capital respectively.

Bowmark Capital backed child care business Advanced Childcare Ltd has been sold to GI Partners, a private equity house with a preference for investing in property backed opportunities for an estimated 7.5x EBITDA. Care UK’s childcare residential care business was sold to Keys Group. Care UK has decided to focus its attention outside the children’s service sector which is a small portion of its health and social care business.

Another company in the spotlight this month is Southern Cross Healthcare, a company that has faced a number of challenges in recent years. Southern Cross has made attempts over the last six months to persuade landlords to renegotiate its rental agreements as rents have been rising faster than fees. It is understood that the situation with its landlords may also have played a part in Southern Cross recent decision to pull out of talks with potential buyers, due to fears that some landlords were delaying a decision on rent reductions until an outcome was reached. Some landlords are unwilling to accept rent reduction requests but believe the business should be restructured and new management brought in. Southern Cross leases the vast majority of its 750 care homes and has brought in advisers to accelerate the negotiations.

The Southern Cross’s “roller coaster” will continue over the next few months and it will be interesting to see whether the incumbent turnaround team are successful in saving the business and central to which will be support from the landlords!

Deals

Utah Medical Products Inc has acquired Femcare Holdings Limited for a consideration of £25m. Utah is a US based company producing predominantly urology and gynaecological disposable medical devices for hospital use. Femcare markets and distributes female sterilisation devices used in surgical operations. The transaction is in line with Utah’s strategy of expanding its international presence.

GI Partners has acquired Advanced Childcare Limited for a consideration worth £28m. GI Partners is a US based private equity house that focuses on investing in asset rich businesses. Advanced Childcare Ltd is a residential education provider for young people with emotional behavioural problems which was an MBO backed by Bowmark Capital. Advanced Childcare’s current estate includes 30 care homes with 123 residential beds and two fostering agencies.

Keys Group has acquired a care and education provider for children and young people from Care UK for an undisclosed consideration. Keys Group provides specialist outcome services and residential education provider for children and young people with emotional behavioural problems.

MHA Care Group has acquired a new 30-bed care home in Derbyshire from developer LNT Construction for an undisclosed amount. MHA would now be able to have a flagship presence near its Derby headquarters.

Glenside Manor Healthcare Services Ltd has been acquired in a management buyout backed by Bowmark Capital. Glenside Manor provides neuro-rehabilitation services and as part of the transaction Bowmark Capital is investing £25m to acquire a stake in the company. The transaction will provide Glenside with expansion financing allowing the company to develop additional rehab facilities to meet the growing demands.

Halma Plc has acquired Medicel AG for a consideration of €54m. Halma Plc is a UK based manufacturer of fire and gas detection products, water leak detection and UV treatment products, elevator electronics, bursting discs and sequential locking for process safety, high power electrical resistors, and ophthalmic optics. Medicel AG is a Switzerland based company engaged in designing and manufacturing single use injector devices and phacoemulsification products from private investors. This will allow Halma to expand its existence in the ophthalmic surgical instrument market.

Moonray Healthcare has acquired Telehealth Solutions for an undisclosed amount. Moonray is a buy and build specialist platform owned by Fidelity Investment Group. Telehealth is a provider of remote patient management services.