New research highlights opportunities from NHS shake up
Justin Crowther - "Reform creates major opportunities"
New research written by Catalyst highlights major growth opportunities for private sector companies working within the healthcare sector, especially within primary care. Huge pressure on health and social care funding and an increasing commitment to a patient-centric delivery model are creating new ways in which the private sector can provide services.
Whilst the impact of the radical changes proposed by Andrew Lansley in the 2010 Health White Paper to the commissioning structure within England and Wales (to be implemented by 2013) are still not entirely clear, Catalyst’s analysis suggests that this will have a net positive impact on the role of private sector in the provision many NHS services, particularly in primary care.
Over £15 billion has been invested in M&A by corporate and private equity investors in the healthcare sector over the last five years. The volume and value of deals fell substantially in 2009, mainly due to the retreat of corporate acquirors, however statistics from the first six months suggest that activity has recovered in 2010, especially due to increase in private equity investments in primary care and bolt-on domiciliary care acquisitions.
Justin Crowther, Director and healthcare specialist at Catalyst, explains, “the Equitable Access to Primary Medical Care (EAPMC) programme, launched in 2008, opened up competition in the primary care sector. However, less than 2% of the £8 billion annual budget allocated to primary care by PCTs in England is currently being spent on private provision. This is significantly lower than in general and acute secondary care or mental health, which is now in excess of 40%. The creation of Alternative Provider Medical Services (APMS) contracts was intended to redress this imbalance. Our research into all APMS contracts awarded since April 2004, shows a significant proportion, over 32%, have been won by private sector operators although of the 330 APMS contracts awarded to date, 180 have been awarded to different providers, which has resulted in fragmentation across England and Wales.”
Crowther continues, “Generally when markets become fragmented, consolidation quickly follows and we fully expect the consolidation of those companies who now hold APMS contracts. It is clear that geographic expansion is one of the key drivers, as it has been in the previous waves of consolidation in long term and specialist care”
Catalyst’s report provides a review of the M&A activity during the last five years across the whole of the healthcare sector. Outside primary care there are a number of key findings in other areas of healthcare provision including:
Investment will be channelled into private sector companies operating in areas where outsourced provision will help deliver efficiencies or shift care into more cost effective settings;
There will be continued restructuring and de-gearing of balance sheets in long term elderly care market in the medium term, with banks lending more money as confidence returns to the market, albeit at much lower multiples;
Acquisition activity in the long term care market will increase in 2010/11 as firms seek to increase their self-pay client mix and local authorities sell off care homes in an effort to curb costs;
The private equity backed domiciliary care buy-and-build platforms will continue to acquire small domiciliary care providers throughout the UK in order to build scale and geographic coverage; and
Growth in the specialist care market over the next two years will be more reliant on acquisitions. Larger operators with greater access to capital will be better placed to transact.
