FC Advisory’s Fergus Clancy is one of Ireland’s most accomplished healthcare executives, acting as advisor to government, boards and CEOs on a range of health and social care issues. He was CEO of Mater Private Network, one of Ireland’s premier healthcare companies, and led a private equity-backed buy-out of that business in 2007. He remained at Mater as CEO for ten years before advising on a subsequent buy-out of the business in 2018, following which he was appointed non-executive chairman.
He also serves on the board of CareChoice, a large nursing home group, on which he advised Paris-based infrastructure fund, Infravia, on its takeover in 2017. More recently, he has taken over as chair of Ashdale Care, a private provider of therapeutic residential care for children in Ireland, following its buyout by Cardinal Capital from MML Growth Capital.
HMi caught up with Fergus Clancy to gain insight on developments and opportunities in the Irish health and social care markets.
HMi: How would you describe your business at FC Advisory?
Fergus Clancy: I advise institutional investors on M&A opportunities in the Irish health and social care sector.
I assist them in doing due diligence and, if that is a positive process and they feel inclined to invest, I am open to potentially co-investing with them, and chairing or joining the board of the company post-acquisition.
The objective for me is to participate in a small number of bigger deals that I advise on and participate in. FC Advisory does not seek out one-off fee-based assignments. Our sweet spot is to partner and co-invest with institutional investors on deals in which we have conviction.
HMi: Do investors like that you participate in the deals?
FC: Yes, it’s a nice synergy and it does tend to work well. It means that I limit the number of deals I will advise on, or participate in, because I have an ongoing commitment to them.
I also run a small investment fund, which looks at supporting high-potential healthcare businesses. This fund, called TriCastle Healthcare Partners, provides financial and intellectual capital to healthcare companies that have real potential but who need help to realise it. TriCastle gives me an opportunity to draw on my experience from the sector and to let the entrepreneurial, creative part of the brain to be exercised a bit more than is sometimes possible in the larger companies that I am involved in, where a slightly different skill-set is required. I like the mix.
HMi: What is the profile of a typical healthcare investor in Ireland?
FC: They are typically international – there are some investors in Ireland big enough to do the larger deals, but only a small number.
The larger healthcare deals would be beyond the scope of Irish domiciled funds. I work with both domestic and international funds, but typically, the scale of deal that we can add most value on are those that would be beyond the scope of the Irish private equity firms.
HMi: What sectors of the market do you tend to focus on?
FC: We can add most value to businesses that touch patients. In other words, typically regulated, healthcare services companies. I have also looked at some businesses that sell directly into the healthcare services sector, such as medical device/consumable distributors.
I came up through the healthcare management route, and the area that I’m most comfortable with is helping owners and management teams navigate their way through strategic or operational challenges.
HMi: There seems to be a lot of activity in healthcare real estate now. What’s the attraction for investors?
FC: In the first instance, it’s the sale and leaseback process.
It’s only in the last couple of years or so that sale and leaseback has started to get traction in Ireland. They’re particularly prevalent in the care home sector, and the attractiveness of the care home sector to real estate funds is that there is very long-term predictable demand, which is demographically driven. There is a clear need for that sector to grow to meet demand. Care homes give real estate funds an opportunity to get exposure to that long term growth.
The other feature that is particularly attractive is that reimbursement is government-backed. Over 90 per cent of revenues in the care home sector come directly from central government. It’s a very straightforward system of reimbursement, so not only is demand long term and predictable, but the revenue associated with that demand can also be predicted out into the future, which makes it attractive.
HMi: What’s that doing to yields?
FC: Yields are compressing. There has been a lot of European capital coming into the market in the last few years.
The care home sector is going through a period of very fundamental change.
Approximately 80% of care home beds are privately owned and operated, and we are seeing the emergence of four or five large groups that will deliver most of the future growth. There’s been very significant consolidation in recent years.
HMi: Where are the investors based?
FC: There has been a significant inflow of capital from France. CareChoice is owned by Infravia, a French infrastructure fund. CareChoice is only one of the large groups to own all its care facilities.
The other groups are part or in PropCo/OpCo structures. Respected operators such Orpea, DomusVi, Emera, and VivaltoVi have all entered the market and are driving the consolidation. On the property side, specialist funds such as Belgian-based Aedifica have been active and successful in acquiring assets.
There is still some scope for more consolidation and there is opportunity for growth, which makes the care home market attractive.
HMi: What about the attraction to investors of hospital groups?
FC: Of approximately 70 hospitals in the country, 50 are owned, operated and funded by the state.
Access is largely based on clinical need, not ability to pay. There are c.20 private hospitals and the majority of those are for-profit organisations. They account for around 20% of beds in the hospital sector, but probably 40% of the elective, surgical activity in the country.
That percentage is increasing because private hospitals are playing an increasing role in providing much-needed capacity to the public sector. I estimate that in 2021 approximately 20% of the private hospitals’ capacity will have been utilised by the state. This offers the state access to high-quality infrastructure that is readily available and cost-efficient to use. It will be of particular help to the state over the coming years to help address growing waiting lists arising from Covid.
Unlike in the UK, where I think maybe 10% of the adult population hold private health insurance, in Ireland it is around 50%. People purchase private health insurance primarily for the purposes of gaining access to the private hospital system where speed of access and choice of consultant are all highly valued. That’s why so much of the elective activity in Ireland takes place in the private hospital sector.
There has been some consolidation in that sector, the sector is already dominated by four hospital groups, but there’s a little bit left to go. Growth prospects generally in the sector look very positive.
HMi: How do you see markets progressing?
FC: On the hospital side of things, capacity is at a premium. The opportunity lies in operational efficiency, trying to make as much capacity available as possible to help address the urgent waiting list challenge that is going to persist for quite some considerable time.
In the care home sector, the opportunity lies in the provision of rehab and transitional care services, being able to offer public hospitals the opportunity to discharge patients earlier than they might traditionally have done to relieve pressure on public hospital beds. So, care homes either taking clients discharged early from public hospitals or taking admissions directly from the community to avoid hospital attendance to begin with.
Hospital avoidance is an increasingly important theme for any health service that has limited capacity and an ageing population as is the case in Ireland.
A business that TriCastle has invested in, Mobile Medical Diagnostics, is a company that plays in this space. It provides mobile radiology services. The company goes into care homes to carry out x- rays at the bed side to avoid the transfer of elderly people into a hospital setting just for diagnostic procedures.
There’s certainly a significant push to try and keep people independent and at home for as long as possible. So, homecare is also a fast-growing sector of the health service in Ireland. There’s a significant increase in funding in that area and the number of care hours being funded by the government is rising. We will see consolidation and continued growth in the sector.
There’s also a significant amount of effort and energy going into designing technology that facilitates that independent living, using technology to enable people to stay out of the hospital system.
There is a lot happening, in both the care home and home care sectors.