writes Fardeen Nairman, director, corporate finance, Quantuma
Global healthcare expenditure is increasing at an unprecedented rate and is projected to exceed $10 trillion by 2022.
This growth is as a result of a combination of economic, financial and social factors. Ageing and growing populations, better diagnosis of chronic diseases, rising labour costs and advances in innovative technologies are all contributing to increased healthcare demands as well as expenditures. This has put an undue amount of strain on healthcare providers and local authorities.
While stakeholders look to innovative technologies and more efficient means of healthcare delivery, the sector remains attractive for investors and continues to see high levels of deal activity globally. The search for alternative revenue sources is fostering horizontal as well as vertical integration. This is evidenced by the fact that over £1.5 billion worth of investment was poured into this sector in 2018.
As specialists in lower to mid-market healthcare services transactions, we look at the continued growth in this sector as well as the opportunities this brings to those looking to buy, sell or transact.
Over the last few years, deal activity in the healthcare sector has been steadily rising with 15% of all European deal activity taking place in this sector. More specifically, M&A in the care home sub-sector has been buoyant. Occupancy rates have been growing and reached 89% across the UK in 2018 while average weekly fees reached £773, driven by the increase in life expectancy and a reduction in the number of beds due to closures. The defensive characteristics of the sector and long-term income, combined with the fundamental strength of the occupational market, makes the care home sector appealing to those investors wishing to diversify their asset portfolios.
Active investors into this market have included private-equity buyers, trade players, property companies, real-estate investment trusts and niche funds. Increasingly, operators have been looking to release equity via sale and lease back transactions or by
selling the freehold and entering into a ground rent contract. By selling the freehold interest on a portfolio of homes, operators can release crucial funds for repaying debt or reinvesting in their businesses.
Making accurate predictions on operating performance in the current political and economic climate can be tough. However, we believe that the care home sub-sector is least affected by the impact of Brexit, instead driven by domestic pressures and favoured for its long income streams. The level of overseas interest in this market continues to grow and is a particular source of encouragement. The biggest barrier however will be insufficient investment opportunities.
Restricted opportunities should also lead to increased interest in broader healthcare segments such as adult supported living and childcare.
So, what does this mean for the future of healthcare services?
Put simply, the fragmented nature of the sector continues to drive market consolidation and both horizontal as well as vertical acquisitions continue with the aim of producing new revenue streams. Investment in health technology continues to grow and is expected to reach $280 billion by 2021.
The team at Quantuma have been instrumental in completing a number of transactions across the healthcare services sector and have specific expertise in helping owners, operators and investors meet their long-term objectives. If you or a client are looking to grow, dispose, raise capital or release equity in this sector, we would be delighted to share our expertise and experiences with you.