The Government admit defeat in a protracted procurement process, they throw in the towel to private enterprise and declare Branson was right to worry. The failed process took thousands of man hours by the four key bidders and now the tax payer will have to pay the £40m bill. Rightly the public are asking “how could this happen?” What is the point in a privatised transport system when the Government can’t fairly decide who to buy from?
Gathered for breakfast in the Savoy’s River Restaurant is a group of Chairmen who know what it’s like to deal with government, not in transport but in Healthcare. They know what happens when decisions are made on the basis of political rather than commercial considerations and they bear witness to how political whims can dictate the success of business. These Chairmen however are not in a position to use this as an excuse, their businesses are owned by Private Equity Investors ruthlessly demanding profits and returns at any cost, or so we are led to believe.
An aging population, increasing wealth and greater diversity of clinical treatments has led to significant growth in the size of the private healthcare market in the UK. Correspondingly, it has led to increased interest from Private equity investors. When times were good many made plentiful profits yet some failed in rather spectacular and high profile fashion. It was the failures that of course resonated,cementing in many people’s minds the image of asset stripping “vulture capitalists” exploiting the elderly and unwell, taking advantage of that most sacrosanct of institutions, the NHS.
Rather unsurprisingly this is not a view shared by this particular collection of Chairmen. Shielded from a blustery autumnal morning enjoying their poached eggs, these men are responsible for the health and wellbeing of a significant proportion of the UK population. Whether it be children with special care requirements or the elderly,these chairmen must ensure the highest level of clinical excellence, motivate their staff and make a profit;striving to build their businesses on the shifting sands of government policy.
Joined by two leading mid-market Private Equity investors at the Marble Hill Partners Healthcare Breakfast the conversation centres on how you display to government that private investment in healthcare is a force for good? Aatif Hasan, on behalf of August Equity suggests that they look to invest in businesses which partner with local authorities working closely with them to enable delivery of the services they require more efficiently. Operating at the lower mid-market level this approach would make sense for the businesses that August invests in.
Agreeing entirely, however, is the Chairman of a major hospital group, “actually it has to be local. I’ve sat in government meetings and top down doesn’t work.” Discussion around the table suggests that as the 4th largest employer in the world the NHS is too big for any one size fits all solution, the solution must deal with local requirements. The business or group can be national or international but the relationship and engagement has to be on a local level.
The Government has tasked the NHS with achieving compound 5% year on year savings. Changes have to be made, but can local or regional private healthcare providers be the answer or at least part of it?
The motivations of Private Equity are of course to see a financial return but for our group of Chairmen and investors their worst fear is of substandard service and a corresponding PR disaster. With a sceptical press and a general climate of aversion to financial institutions, letting their patients down will not simply mean a minister loses their job. It can spell the end for an investment where hundreds might lose their jobs and in the process hundreds of vulnerable people might be put through a period of upheaval. This level of accountability focuses the mind and the importance of getting it right has never been so great, so is there still money to be made?
Phillipp Schwalber, Head of Healthcare at HG Capital, suggests that there is. The key to success is management and ensuring that the senior team understand their business and are up to the task. All too easily however it is possible to make a mistake with management and recognising this early can make the difference, but it’s difficult. “Through the transaction you build a relationship” asserts Phillipp “it’s not easy 4 weeks later to turn around to your Managing Partner or the business and say I’ve made a bad call on someone and they need to go”. Perhaps showing the softer ‘relationship’ side of private equity, Phillipp suggests that sometimes decisions don’t get made quickly enough but fundamentally getting the right team is not only the best thing for the investment but for all aspects of the business, including their patients.
With the build-up of “dry powder” in Private Equity over the last 4 years and with the well documented lack of money in the public sector it would appear there is a natural fit for investors to relieve some of the burden. In doing so they are committing themselves to delivering higher standards and better value than can be found elsewhere; as an industry they appear comfortable with doing just that but only on the condition they are allowed to make a profit. What is not yet clear is whether local and national government through gritted teeth or otherwise are comfortable with them making a profit…
If the public sector can become comfortable with profit and better at buying then maybe they will find a partner in private equity?
Arden Tomison, Director
News & Insight