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The Healthcare Industry Barometer 2015

We are in exciting, unpredictable times for politics, banking, and the business of healthcare. As this year’s Healthcare Barometer reflects, opportunities in the UK healthcare, medtech and life science sectors continue.

We have seen a very active corporate merger and acquisition market over the last 12 months, with sales and purchases of established healthcare businesses to and by private equity and well-funded trade buyers. The institutions and banks are again able to provide limited debt financing for the right deals. International investment continues, from the US and Asia in particular. Healthcare UK has assisted public and private sector organisations to secure more than £1.6 billion of investment in infrastructure and clinical services in China, the Middle East, and India.

The NHS budget continues to be tightly controlled, creating pressure at all levels, with low workforce morale, ever increasing workloads and patient expectations, the retirement of many GPs and 13 NHS Trusts currently in special measures. The cumulative deficit of hospital trusts and other NHS providers is expected to be £2 billion within the next 12 months. CQC’s latest report (published on 14 October 2015) recognised that most services provide good quality care. It acknowledges that key requirements for the delivery of good care are good leadership, appropriate staffing and adequate investment.

In our experience, Public Private Partnerships are essential, but continue with mixed results. A third of NHS clinical services contracts awarded since the Health & Social Care Act 2012 have been to the private sector. This is still a small part of the overall NHS budget, but this growth seems likely to continue following the 2015 General Election result, the continuation of current government policies, and the need to meet election promises of guaranteed shorter access times and 24-7 services.

The investment focus on secondary and primary care continues as investors become comfortable with the UK market. Hospitals and care homes continue to attract domestic and international capital and investment, seeking higher yields, long term secure income, and solid real estate backed returns. Good quality specialist care is also attractive for investors as margins are better and occupancy is longer term. The national living wage has caused some concern (with payroll 50-60% of many operators’ incomes) and the Chancellor’s November Comprehensive Spending Review is awaited. Most well run larger operators have already concentrated on minimising agency staffing costs and as a result already pay and invest in their staff at these levels. However it may lead to some further consolidation in the sector.
The GP surgery market continues to produce excellent returns, hedged across all regions. However, NHS Property Services continues to review its lease portfolio and structure, requesting shorter terms, limited NHS rent reimbursement, no funding for improvements of older premises, and increasing pressure for the integration of hospital and community services.

Better integration continues to be the aim – between health and social care, private and public markets, cost and care outcomes. These are all challenging in the context of funding constraints so the innovation and transformation of services and facilities will be vital going forward.

With our sincere thanks to HealthInvestor for the survey, and to all the respondents for your comments, we hope you find the 2015 Barometer a useful measure of current opinion in the market.

Warren Taylor
Partner, Nabarro LLP

Candice Blackwood
Partner, Nabarro LLP


The Healthcare Industry Barometer 2015
The Healthcare Industry Barometer 2015

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