Healthcare sector comment – January 2011

Date

January 2011 saw the announcement of the Health & Social Care Bill.

A radical overhaul of the NHS has just been announced, but what does this really mean for patients, GPs and private healthcare companies? And what are the implications for M&A activity in 2011?

There are some fundamental changes taking place, including the transfer of £80bn of the £100bn annual healthcare budget to GPs. Primary Care Trusts and Strategic Health Authorities will be abolished, which will impact over 20000 jobs. Private companies will be able to bid for services and NHS hospitals will be able to generate income from private patients.

The initiatives announced in the Health & Social Care Bill are intended to save £5bn by 2014/15 and £1.7bn pa thereafter. This will come from pay freezes, cutting management and staff costs, reducing central budgets, shifting services to the community and introducing competition from the private sector.

There is no question that given the rising demand for healthcare services, something had to change. Around £20bn of efficiency savings are needed and costs have to be reduced.

We are likely to see healthcare provision continue to shift towards services that reduce hospital stays, increase community and home based services and the introduction of new, innovative technologies.

Whilst the impact of the NHS reform must not be under-estimated, the increasing demand for quality healthcare services remains. Overall, this will present opportunities for the private sector, both to accommodate demand that cannot be met by the public sector and the provision of outsourced services to help drive efficiencies. Nevertheless, public and private sector organisations alike will need to become increasingly competitive and differentiate their service offerings. This is likely to drive consolidation amongst healthcare providers and therefore increased M&A activity.

Pharmaceutical and medical device outsourcing services

January saw two interesting deals involving providers of outsourced services to the pharmaceutical and medical devices sectors, with the sale of WCI to the Indian company, TAKE Solutions, and the sale of Oxford Outcomes to Irish listed company, ICON Plc. So, what are the drivers of this activity?

The pharmaceutical and medical device market continues to move towards a tougher regulatory environment both in Europe and the US. Accordingly, companies supplying pharmaceuticals and medical devices require services and tools to limit the burden of new regulatory compliance issues that can impact productivity and efficiency. The regulators are also demanding that companies provide strong health economics data to demonstrate the economic value of products before they get on the reimbursement or approval list. These services are usually outsourced by pharmaceutical and medical device companies to contract research and consultancy organisations. The above mentioned acquisitions are good examples of companies striving to meet the increasing demand for outsourced services and we anticipate similar deals over the next 12 months.

Deals

Healthcare at Home Ltd has acquired Sciensus Ltd. Healthcare at Home is a provider of home-based healthcare and specialty pharmacy services. Sciensus provides health informatics for clients across the NHS and the pharmaceutical industry. The Sciensus acquisition enables Healthcare at Home to provide sophisticated data capture and reporting systems for its clients and to support its model of treating patients outside of the traditional hospital setting.

Advent International has acquired Priory Group from RBS, for an enterprise valuation of up to £925m. Priory Group provides mental health and rehabilitation care services.

Management have acquired Swiss Smile Londonin a management buyout from the privately owned Swiss dental business based in Switzerland.

ICON plc has acquired Oxford Outcomes, a global provider of outsourced development services to the pharmaceutical, biotechnology and medical device industries. Oxford Outcomes (“OO”) provides specialist services in the areas of patient reported outcomes (“PRO”), health economics, epidemiology and translation and linguistic validation. The OO acquisition allows ICON to cross sell a complete suite of services and meet the unmet demand for health outcome and economic services.

Care UK has acquired Specialist Medical Imaging (“SMI”). Care UK is a provider and operator of over 40 primary healthcare sites including GP practices, walk-in centres, eight hospitals and specialises in elective surgery. SMI provides diagnostic services which include CT and MRI scans and which are provided at a network of clinics, GPs’ surgeries and hospitals. With the NHS under funding pressure, the acquisition of SMI allows Care UK to be well-placed to benefit from an increased trend towards outsourcing.

City & County Healthcare Group has acquired Quality Care Services Limited, a domiciliary care provider backed by Sovereign Capital. This acquisition significantly extends City & County’s presence in Northern Ireland following the Group’s 2010 purchase of Guardian Homecare, which operates a branch in County Armagh.

TAKE Solutions has acquired WCI Consulting Group, the international business technology company which provides products and solutions backed by expertise in life sciences and supply chain management, for an undisclosed amount. WCI provides TAKE with capability in patient safety and established business consulting capability and complements its portfolio of IP based business solutions and services.

Meda acquired two Over-The-Counter (“OTC”) consumer products from GlaxoSmithKline. Total annual sales for the two newly acquired products were around $11.9m, with strong profit margins. The purchase price was around $27m. Meda wants to continue to expand its consumer brands presence in the US OTC market.