Investment trends and issues in the care market Breakfast Seminar

The third Care Conversation Seminar looked at investment trends and issues in the care market.

‘The real world hasn’t really changed if you’re in healthcare,’ Global Head of Healthcare for Rothschild, Dominic Hollamby, told delegates at the seminar. ‘People will still age at the same rate that they used to age, and will still need surgery.’

Clearly there was economic pressure, he said, as widespread de-leveraging spelled a difficult time for those organisations that had enjoyed substantial growth through leverage, but it was important to keep things in perspective and navigate through the difficult times.

The de-leveraging was on a massive scale, he said, with banks suffering, equity markets volatile and consumer spending falling dramatically. It was hard for corporates to borrow – because the banks did not have the money to lend – and clearly there would be a lot of unemployment. In terms of equities, no one was calling the bottom of the market yet and the performance of listed UK companies in healthcare services had been mixed, with some poor performers.

In terms of M&A, 2006-07 had been boom years but in 2008 the number of deals had halved and the market stood at a fifth of its value the previous year. As for property yields there had been very few transactions, and multiples had contracted and could still contract further.

So had the long-term investment case changed for the health services market? The answer was ‘not really’, he said. ‘It’s possible to get a bargain, with a better yield on what you buy.’ The substantial drop in investment had not been because the returns were not there, but because of difficulties accessing capital.

If, as was predicted, the UK ended the year with a national debt of more than 60 per cent, what would this mean for healthcare services? The government would have to ‘slow the juggernaut of debt down’, he said. ‘If we put aside ideology, the private sector is tremendously successful in healthcare provision,’ he said, particularly with regard to elderly care. This meant that, in a lot of areas, use of the private sector could generate cost savings, so it was entirely possible that the government would move more in this direction.

Consolidation of the market still had some way to go, he said. In some areas, such as private acute hospitals, there was ‘almost nothing left’, with a number of local monopolies, while other areas – like elderly and domiciliary care – were barely consolidated. In elderly care, almost all provision was privately provided anyway and it was therefore ‘a pretty good place to be in terms of supply and demand,’ he said. ‘Supply is in excess of demand for elderly care which is hugely illogical,’ he said – there was a substantial level of need, which meant that the biggest challenge facing the industry was addressing the issues around speed of admission.

The growing demand for end of life care represented a genuine nexus for change, he said, and mental health was also going to be a growing business, although future funding could well be tight and the move towards a national mental health contract was a sign of the field becoming more prescriptive and could lead to consolidation. ‘There is a general trend towards more bureaucracy and that drives more consolidation,’ he said.

Over-leverage in the UK was undoubtedly a dramatic picture, but many companies would survive simply by growing their business, he stressed, and in terms of potential future strategies, most companies would be concentrating on organic growth. ‘Most of the key players are doing ok as businesses – it’s their debt and balance sheets that are the problem.