August exits care home buy & build for £75m

August Equity has sold Healthcare Homes, a UK residential care home group, to Bowmark Capital for £75 million ($148.5 million; €93.7 million).

August Equity originally bought the company in August 2005 for £37 million when the group had 4 homes and 100 beds.  August expanded the group through a buy and build strategy to more than 800 beds across 21 homes. In February August Equity bought Manorcourt Care, a Norfolk-based residential home company with 87 beds, in its eighth acquisition for the company.

The healthcare sector is regarded as a hot sector according to 17 percent of respondents to a recent report by August Equity and Mergermarket’s research arm Remark. Despite the low uptake, this was the most votes received by any sector, reflecting healthcare’s defensive characteristics in a downturn.

Kevin Grassby, a managing partner at Bowmark, said he was attracted to the deal for three reasons: he had backed the management team headed by Richard Clough three times in the past; the growth in wealth in the UK on the back of the property boom ensured a high number of private customers; and the business could be expanded into other regions such as the East Midlands and the counties north of London.

Healthcare Homes currently provides 70 percent of its beds to private customers, who are obliged by means-testing legislation to opt for private care.

Grassby said: “Because of this there is greater scope for flexibility on pricing and ability to sell add-on products and services. There is the opportunity to push through fee increases as you are ultimately negotiating with one person rather than a block buyer. You have greater flexibility on pricing and greater flexibility on the service side.” He said this benefitted patients who would be able to use purchasing power to opt for beds near their homes or additional extras such as a nice garden.

“This is the ultimate non-discretionary purchase. It’s not something you can delay. It’s something you have to do. [The business will resist a downturn] as long as you believe property value is not going to be wiped out across the board.”  Given the extent and length of the UK property boom over the last twenty years prices would need to fall substantially to affect the business, he said.

NM Rothschilds advised August Equity on the sale.

Care homes have been popular investments for both mid-market and larger buyout firms. Last year The Carlyle Group closed its $6.3 billion (€4 billion) take-private of US nursing home chain Manor Care in December, while FTSE 100-listed 3i sold adult care provider Care Principles to The Delta Fund, advised by Qatari-backed investment vehicle Three Delta, for £270 million making a 3.9 times return.