Prognosis for health sale seen as optimistic

Blackstone-backed Southern Cross is set to float by the end of month and the healthcare group has begun pre-marketing for its IPO, hoping to achieve a market capitalisation of £500m–£600m.

The deal will comprise around £170m worth of primary shares and an undetermined number of secondary shares to be sold by Blackstone.

However, some industry insiders are unsure that a £550m tag is realistic. “Southern Cross won’t go for £550m,” says one industry expert, “£400m or thereabouts is a more likely number.”

However, he concedes that the price will be dependent on the deal worked out with the property holding company.

“It depends what rental cost has to be paid to the property owners; the more this is the lower the value will be,” he says. “But I think the market, although wobbly at the moment, will welcome a big healthcare play, Blackstone will probably end up just selling down less of its equity.”

The market had been expecting another UK healthcare group, Four Seasons, to go to market but this process appears to have stalled over the details of the opco-propco structure. Southern Cross is thought to be in a stronger position, having already sorted out this structure in advance.

In 2004, Blackstone backed a £162m (US$290m) management led buyout of Southern Cross Healthcare, acquiring the business from West Private Equity. Since then, the company has made five bolt-on acquisitions totalling around £90m (US$168m).

A few years ago, the elderly healthcare sector was seen as the poor cousin to the racier specialist care home area, where margins are higher and stays often longer. But in the last 12 months, elderly care homes have seen something of a renaissance, driven by the perennial theme of an ageing population living longer, and Southern Cross is perfectly placed to lead the march in this growth and consolidation.

Morgan Stanley and UBS are joint bookrunners, with Citigroup and Investec as co-leads.