Healthcare sector mergers and acquisitions comment – April 2009

Date

This month featured the release of China’s new healthcare reform plan which sees the Chinese government digging deep to reverse many years of under-funding.For the three years from 2009 to 2011 the government will double its annual expenditure on healthcare, equating to 5.7% of GDP.

This plan will no doubt accelerate growth of the healthcare sector, however it also brings a shift in emphasis from urban hospitals to primary care services, especially in the rural and poorer regions, improving the accessibility and affordability of healthcare. To take advantage there will be a strong case for multi-nationals to look for acquisition targets that realign themselves with the Chinese government’s initiatives. This could involve having stratified portfolios combining high-end with less sophisticated products and expanding sales and distribution networks to reach primary care services, especially in rural areas.

Closer to home, M&A activity in April appears to have increased significantly across many segments of the healthcare sector.

Deals in the UK

NVM Private Equity has exited from Pivotal Laboratories Limited, the York based provider of laboratory support for clinical trials. Pivotal has been acquired by ACM, a North American clinical laboratory who Pivotal formed an alliance with in 2006 to offer a global service to international pharmaceutical companies. The trade sale has delivered an initial return of 2.2x for NVM funds following their investment in August 2005 to fund a management buy out.

US distributor of dentistry, veterinarian and rehabilitation products, Patterson Companies Inc, through its UK subsidiary Homecraft Rolyan Ltd, has acquired Mobilis Healthcare Group Limited, the healthcare and sports products supplier, for an undisclosed sum. The acquisition is in line with Patterson’s strategy to enhance its presence in the UK rehabilitation market.

The management of Vanguard Healthcare Solutions Ltd, a mobile surgical operating theatre and diagnostic facility provider to both public and private sector hospitals in the UK, has acquired the company in a management buy out transaction from Nuffield Health, for £31m. The deal was financed by MML Capital Partners.

Genetix Group plc, the cell imaging and analysis group, achieved further expansion into the digital pathology market through the acquisition of Slidepath Ltd, a Dublin-based digital slide and life sciences informatics applications software developer. The total consideration is an estimated €3.7m consisting of an initial consideration of €2m settled in cash, 785,520 new ordinary shares in Genetix and a further earn-out payment of €1.2m contingent on certain EBIT targets.

GlaxoSmithKline acquired US skincare products manufacturer, Stiefel Laboratories Inc, for £1.9m in cash plus the assumption of £267m of net debt and a further £200m payable contingent upon Stiefel’s future performance. GlaxoSmithKline’s prescription dermatological products will be combined with Stiefel’s and the new business will operate under the Stiefel brand.

Healthcare services provider, General Healthcare Group Ltd, acquired St Luke’s Hospital for the Clergy, a private hospital based in London, for an undisclosed sum. The hospital will become part of General Healthcare’s BMI Healthcare group.

Healthcare operator, Rosewood Health Care Ltd, has acquired Barley Brook, a residential home in Lancashire. The business was bought from Century Healthcare Ltd for an undisclosed sum.

Pharmaceuticals manufacturer, SSL International plc, has consolidated its position across the CIS and Eastern Europe through the acquisition of Gainbridge Investments (Cyprus) Limited and by increasing its stake in Beleggingsmaatschappij Lemore BV from 15.5% to 50%. Beleggingsmaatschappij is a Dutch wholesaler of condoms and medical products across the CIS and Gainbridge packages and distributes condoms and medical products in the Ukraine.