Hospital visit

Last month, a consortium of private equity and real estate investors, in conjunction with South Africa-based private healthcare operator Network Healthcare Holdings (Netcare), acquired UK-based General Healthcare Group for a total purchase price of £2.2 billion ($4.1 billion; €3.2 billion). The deal was notable not just for its size or the diverse set of equity partners it brought together—private equity firm Apax Partners, private equity real estate firm Brockton Capital and property company London and Regional—but also for the new company that it creates: one of the largest providers of private hospital care in the UK.

Though Netcare previously had a limited presence in the region—its primary operations are in Southern Africa—General Healthcare Group operates a network of 49 hospitals and approximately 2,400 beds throughout the UK. According to David Marks, a cofounder of Brockton Capital, one of the attractive aspects of the transaction was the ability to partner with an experienced operator, combined with the underlying fundamentals of the UK healthcare industry.

“The UK government spends about £100 billion per annum on healthcare,” says Marks. “It has formally stated that it cannot afford to provide that going forward beyond 2008. The government is increasingly outsourcing services to the private sector.”

Additionally, Marks points out, GHG owned a significant portion of the real estate underneath its hospitals, providing the equity partners with a level of comfort in a downside scenario. Furthermore, the acquired properties were located close to hospitals operated by the National Health Service, meaning that healthcare consultants could easily travel between the two sites, an important consideration.

“What attracted us was the fact that [GHG] had 50 hospitals in very hard to replicate locations,” Marks says, adding that most of the properties are clustered around London, the southeast of Britain and other population centers. “It's really hard for other healthcare groups to find the land to build these hospitals. If they do find the land, they get beaten out of sight by homebuilders who can outbid them by a factor of two or three.”

As part of the transaction, Netcare will own 50.1 percent of the combined company and will provide £217 million of cash with the balance of the purchase price coming via debt financing and equity provided by Apax, Brockton and L&R.

“This relationship has been crucial in this transaction,” said Michael Sacks, chairman of Netcare, referring to the three consortium partners in a statement, “and may serve as a formidable coalition for future opportunities.”