HM meets… Hedley Goldberg of Rothschild

A weak government, political uncertainty and imminent withdrawal from the world’s largest trading block could make for an unsettling investment environment. But Hedley Goldberg, managing director and head of healthcare at Rothschild tells Maria Davies that investor appetite for high quality assets will make 2018 a busy year in the UK healthcare sector

2018 is going to be a busy year for M&A activity in the healthcare sector, according to managing director and head of healthcare services at Rothschild Hedley Goldberg.
Goldberg started covering healthcare services at Rothschild in 2003 and in the last three years alone has completed more than 30 transactions in the sector, including high profile deals such as Bridgepoint’s sale of Oasis to Bupa, the sale of Priory to US healthcare giant Acadia and the sale of Alliance Medical to Life Healthcare.
Goldberg says it was both the level of activity and the variety that attracted him to the healthcare market. And there has been plenty of M&A activity across various sub-sectors over the last 12 to 18 months. In dentistry, there has been the acquisition of Oasis and of course Curaeos by EQT while Jacobs Holdings has bought Colosseum and Southern Dental, as well as assets in Switzerland and Italy. The mental health sector has seen continued consolidation, with the sale of Cambian’s adult services to Universal Health Services and the emergence of a highly acquisitive new operator in Elysium. Plus, there has been increased momentum in the imaging and lab markets, with Life Healthcare’s acquisition of Alliance Medical and aggressive roll-ups by Unilabs and Synlab across Europe.

More consolidation

According to Goldberg, both dentistry and mental health are likely to see further activity this year as consolidation continues in what have been historically fragmented markets. Although many of the big transactions in these sectors have been done for the time being, he says there is still appetite, as well as room, for the roll-up of good quality assets.
‘We will see a high level of activity across healthcare this year,’ he says. ‘There are certain parts of the sector which are small or well consolidated but I think we will get M&A everywhere.’
Following the CMA review, Goldberg says major operators are more cautious about M&A in the hospital sector. However, despite already being well consolidated, he would not rule out further deals in the sector.
‘I would say investment appetite for healthcare is very strong at the moment,’ he tells HM. ‘And you’ve got many more kinds of buyers now. Private equity is still there but we’ve also seen growing presence from trade and longer term capital funds.’

New investors

Many of the large-scale healthcare transactions in recent years have gone to trade buyers, particularly overseas operators looking for growth platforms in Europe. However, the recent emergence of infrastructure funds, such as AMP Capital which entered the UK market with its acquisition of specialist care provider Regard at the end of last year, is increasing the competition for larger healthcare assets.
‘With the larger assets, in particular, it is difficult to achieve high levels of organic growth,’ explains Goldberg. ‘But infrastructure funds – and many long-term capital structure funds – have the right kind of capital for these assets. They’re highly defensive, cash generative businesses but the organic growth is not double-digit and that suits long-term capital funds where the return criteria can be lower, provided the asset is of the top quality.’
‘A lot of private equity have made good returns with these assets I just think a lot of these companies have got bigger and it’s difficult to grow them at the same rate,’ he says. ‘As these companies get larger being able to double their size through M&A becomes more difficult. At the smaller end of the market, private equity is as active as it’s always been.’
On the asset light side of the market, in areas such as vets and dentistry, private equity remains active and has been aggressively focused on roll-ups.
And, he adds, there are a growing number of targets for investors. ‘Good assets sell well,’ he says. ‘People are looking for quality, so they need to provide good quality of care, have good CQC ratings, and strong management teams.’
However, provided these criteria are met, investor interest remains strong. And, according to Goldberg, this is driving strength in valuations as investors dig deep to buy up consolidation platforms on the asset light side and stable cash flow businesses on the asset-backed side of the market.
‘Healthcare and the continued provision of healthcare is one of the biggest challenges for every country in the world,’ he says. ‘There is a significant demographic impact and the cost of medical care gets ever higher. Private capital should have a role everywhere to make sure that healthcare is delivered and that cost is contained. There is still strong overseas interest in the UK market from a combination of trade private equity buyers and alternative forms of capital. There is interest in healthcare across the board in global terms and the UK has always been one of the most active markets.’

Hedley Goldberg is speaking at LaingBuisson’s Investing in Healthcare Conference in London on 8 February.