Buying and building

Buy-and-build, it seems, has become the modus operandi across the marketplace as larger and smaller buyout firms get to grips with the changing environment.

In light of a tightening debt environment, large leveraged buyout firms have been forced to focus on managing their current portfolios instead of seeking out new targets with which to deploy their mega funds. And, with the closure of the large deal market, this strategy is a sensible way for these firms to play in the mid-markets (see feature pp7, 8). It is also a necessary for big buyout firms to adopt buy-and-build strategies to match cash-rich trade buyers in the current market.

Carlyle Group, for example, has made five acquisitions to-date in 2008, four of which have been bolt-on acquisitions for portfolio companies. To be fair, Carlyle made a number of platform buys last year too, but they were mostly drowned out by the noise generated by big transactions such as Australian rental business Coates Hire and Spanish certification business Applus, as well as unsuccessful attempts at Sainsbury, Altadis and Valentino. Advent International, meanwhile, said this week that its Italian online hotels agency had bought rival Worldby.com.

A sector ripe for consolidation, healthcare in private equity has largely been the province of the secondary buyout, but now that the corporates have returned and financial buyers have had their LBO wings clipped, the potential for bolt-on acquisitions has increased.

Last week, pan-European buyout firm Cinven announced that its Spire Healthcare investment had bought Classic Hospitals from LGV Capital, the private equity unit of UK insurer Legal & General, for a total consideration of £145m. Spire was formed following the £1.44bn purchase of BUPA Hospitals last June, one of the last big private equity buyouts of 2007, shortly before panic began to spread in the credit markets.

Spire has 25 hospitals across the UK, providing services for private and insured patients and NHS-funded patients using the government’s “choose and book” scheme, as well as offering cosmetic and weight-loss surgery. Through the acquisition of Classic Hospitals, Spire becomes the second largest private hospital provider in the UK.

Classic was itself a platform portfolio company under LGV’s ownership. LGV acquired nine hospitals from BUPA in July 2005 for £85m, with Lourdes Hospital in Liverpool bought from a religious order the following year. A further £23m was invested in updating the existing facilities, resulting in a 19% increase in revenues to £94m for the year to December 2007.

Of course, buy-and-builds still continue to be a force in the mid-markets also. August Equity, a UK mid-market private equity firm, is currently planning to sell its investment in Healthcare Homes, a nursing home group, with a price tag of about €107.4m (see p6).

August Equity acquired Healthcare Homes Group in a £37m management buy-in in 2005, and has since carried out an extensive buy-and-build strategy, comprising bolt-on acquisitions of PriMed Group, The Manor House and Aldringham Court in 2006, Claremont Nursing Home and Meadow House in 2007 and Manorcourt Care earlier this year.

The acquisition by another mid-market firm, Duke Street Capital, of UK dental group Oasis Healthcare was a platform buy and it has grown from four practices in 1999 to more than 140 currently. A new chief executive, Justin Ash, was appointed last week from Lloydspharmacy with the intention of bolstering its buy-and-build strategy.