Background and Challenge

Growing demand for healthcare services is placing an increasing burden on public health systems at a time of fiscal austerity, forcing governments to look at new models to deliver improved healthcare outcomes at lower cost. Outsourcing service provision to the private sector is one option being adopted, making this market increasingly attractive for service providers and investors.

One of the largest investors in the European healthcare sector was developing a clear understanding of the sector’s dynamics, and specifically how independent providers can support governments in the achievement of their goals, which was a critical requirement when assessing the merits of a major acquisition target.

Approach and Recommendations

L.E.K. Consulting was engaged to undertake extensive commercial due diligence on one of the U.K.’s largest private sector providers of publicly-funded health and social care. The engagement evolved over the course of a 12-month period and was comprised of four major elements:

  • Evaluation of the implications of government funding constraints on healthcare provision
  • An assessment of the markets in which the target participated, including their size, growth drivers and anticipated evolution to 2015
  • Analysis of the target’s historical performance and relative competitive position
  • An assessment of its growth prospects, including opportunities for the target to expand into a broader set of healthcare services

Through interviews with politicians, physicians, senior healthcare executives and social care providers, and a reference to a broad array of secondary information sources, L.E.K. created a comprehensive map of the likely evolution of healthcare provision in the U.K. Analysis of market potential and the target’s strengths and weaknesses enabled the team to prioritize areas for growth.

Of particular interest was the social care market, where L.E.K. drew on its broad experience to define the means by which the organization could differentiate its offerings to consumers and local authority decision makers. This included undertaking a detailed review of the provider’s care homes in a sample area, comparing its beds, facilities, costs and location against competitors to demonstrate where differentiation could most effectively be achieved.

Results

The investment was successfully completed by L.E.K.’s client. The robustness of the commercial analysis supported a strong investment case for the management team and the securing of an attractive capital structure.