In the face of daily headlines about NHS cuts, GrowthBusiness learns how these have led to fundraising opportunities for businesses in the healthcare sector.
In the face of daily headlines about NHS cuts, GrowthBusiness learns how these have led to fundraising opportunities for businesses in the healthcare sector.
Tech companies in the healthcare sector have found it tricky in recent years to successfully land the required funding for their businesses. However, government cuts affecting NHS primary care trusts (PCTs) are being tipped as a huge driver in the adoption of new patient care technologies that were previously ignored.
Andrew Elder, partner at venture capitalists Albion Ventures, says until recently there has been widespread reluctance to adopt new technologies but cost pressures have seen a surge in interest in areas such as remote patient monitoring, imaging and diagnostics.
He explains, ‘The backbone to all these things is that it will save money. Everyone had been predicting growth in remote monitoring, for example, for about 15 years but it never came. Now it is being taken seriously.
‘A PCT is not going to suddenly change the way it does things just because a new company comes along, but you get an acceleration of the sales cycle fast when people look to their neighbours (other PCTs) for best practice when they see something really working. ‘The key factors in healthcare are not just about the widget or the gadget – you have to understand the patient too. You also have to understand the market and how people actually buy in that market.’
Elder’s sentiments are echoed by many investment managers across the VCT and private equity sector as NHS trusts look for new ways to cut costs and manage budgets. Ian Barrass, partner at Henderson Equity Partners, explains that businesses that are providing a more efficient service will obviously be of interest in the current climate, but warns that there is a fine line dividing success and failure.
He says, ‘The flipside in healthcare is anything that is being funded by local authorities, like care homes for the disabled, where there have been question marks over whether they will continue to get the funding required.
‘Unless those businesses can prove they are providing a lower cost service, they might come under a bit of pressure. There is still that degree of uncertainty, particularly in the UK.’
Hamish Mair, head of private equity funds at F&C Asset Management, says advances in modern technology are being recognised with the sector because pressure for cost saving is continuing to build.
He explains, ‘The cuts will force the commissioners of these services to go for cost-effective and efficacious solutions, which are often provided by the private sector.
‘Healthcare companies in France, Iberia and the UK have been affected, which means that healthcare has to be done more efficiently.’
It is not just technology-led healthcare businesses that are quenching the thirst of private equity investors right now. Mair explains that local authorities are looking at all solutions to reduce the reliance on hospital beds and to keep down the number of patients who stay overnight in hospitals.
He says, ‘There are things like mobile surgeries where people have Portakabins to have day surgery or screening services for oncology.
‘Historically, you wouldn’t have been able to set up a proper operating theatre in a Portakabin but they can do that now. We have a company called Lifeways which looks after disabled adults. They have dozens of local authorities that they have contracts with where they have been asked to hold their price rather than cut it.
‘Their model is not based on an annual price increase because they can deliver the same service, at the same cost, on a wider scale.’
The search for cost efficiencies in the healthcare sector has, no doubt, led to many deals being completed when the business model is directly related to the public sector. Only last month, diagnostics company Abcodia received a £1 million investment injection from Albion Ventures and UCL Business.
Albion’s £750,000 share of the cash comes after numerous previous investments in diagnostics including Dexela, Vivacta and Mirada Medical.
However, private healthcare companies are also benefitting from the changes to the NHS as investors hope this will lead to an increase in those ‘going private’ for the first time. In April, Bowmark Capital backed the £25 million management buy-out of Glenside Manor Healthcare – a private neurological rehab centre.
And the deals don’t come much more high profile than the much-publicised sale of celebrity rehab brand The Priory in January. Albeit at the larger end of the market, private equity firm Advent International bought The Priory Group for £925 million.
The company was sold by a consortium of lenders led by Royal Bank of Scotland after it took the decision not to proceed with an IPO due to the turbulence of the capital markets. The Priory Group runs more than 50 private hospitals and care homes in the UK in addition to its high profile clinics for rehabilitations for certain addictions.
