Private equity is gearing up substantially for a second bumper year in healthcare, according to Deloitte, the business advisory firm.

Tim Murphy, Co-Head of Debt Advisory at Deloitte, commented: “We are seeing frenetic activity in the private equity industry as it looks to make returns on the inherent earnings potential and underlying property value of healthcare.  Taking into account funds raised by the UK private equity industry in 2005, recent levels of interest in healthcare and typical multiples, there could be around £15 billion looking to invest in the sector (this is notwithstanding the huge amount of international interest in the UK healthcare market).  Our research into debt has shown that private equity is much more dynamic in working its capital: the healthcare M&A market is a prominent example of how private equity is leaving the corporate market behind.  We have seen private equity fund healthcare deals with an array of debt models including, sale and leaseback, hybrid securitisation not to mention ‘standard’ leveraged structures such as second lien notes and PIK (payment in kind).”

David Jones, Corporate Finance Partner and healthcare expert, added: “In 2005, activity was driven by the demand for long-term and specialist healthcare, which we see continuing into 2006, but there are new trends supplementing this.  Of note, we have seen private equity acquiring healthcare businesses and splitting the operating model and the assets: so called ‘propco / opco’ deals.  This split is driving the biggest healthcare multiples as property funds look to acquire the assets.  All the major operators have been exploring this opportunity since the start of the year.  Another interesting new development in the market is private equity seeking to identify other growth areas outside mainstream care such as cosmetic surgery, childcare and dentistry.”

Key healthcare drivers in 2006:

• Property fund interest in healthcare assets;
• Government investment and changing regulations e.g. dentistry;
• Demographic trends pushing demand for long-term healthcare;
• Wealth and awareness in the case of the cosmetic industry.

David Jones concluded: “The private equity industry completed £4.5 billion worth of deals in the healthcare sector in 2005, according to the Centre for Management Buy-Out Research, which was a huge leap from £1.5 billion the previous year.  2006 has taken off to a flying start, showing that the sector is not just a flash in a pan.”

Ends

Notes to editors

Glossary of terms referenced in the press release:

• Gearing - The relationship between debt and equity.  It is calculated by dividing the company debt by the common shareholders equity.
• Second lien - A form of financing which is usually secured and subordinate to existing senior facilities.
• Payment in kind - A proportion of interest which is accrued on mezzanine / junior debt and paid either on a certain date or when the business is sold (whichever comes first).  Mezzanine is a loan which is repaid after senior debt but before junior / institutional loan stock.

About Deloitte
In this press release references to Deloitte are references to Deloitte & Touche LLP which is among the country’s leading professional services firms, providing audit, tax, consulting and corporate finance services. Known as an employer of choice for innovative human resources programmes, it is dedicated to helping its clients and people excel. Deloitte & Touche LLP is the United Kingdom member firm of Deloitte Touche Tohmatsu (‘DTT’), a Swiss Verein whose member firms are separate and independent legal entities.  Neither DTT nor any of its member firms has any liability for each other’s omissions.  Services are provided by member firms or their subsidiaries and not by DTT.  Deloitte & Touche LLP is authorised and regulated by the Financial Services Authority.  The information contained in this press release is correct at the time of going to press.