Welcome to the 2016 HealthInvestor / Nabarro Healthcare Industry Barometer. Anyone who has read our previous surveys will know that the one constant in the UK healthcare sector is that there are no constants. Every year brings new challenges, changes and opportunities, and this year is no different. In fact, 2016 has brought a rather dramatic new challenge, and one that it perhaps didn’t see coming: Brexit.
It’s hard to assess the impact of Brexit on healthcare because nobody knows yet what Brexit means. Away from the catchy but ultimately unhelpful refrain that ‘Brexit means Brexit’ and the debates around hard, soft or smooth Brexit, there is very little knowledge of what our future relationship with the EU – and by extension – our trading and business relationship with the rest of the world will look like. And where there is little knowledge, there is inevitably a lot of uncertainty.
Interestingly, though, the Barometer shows the impact of the referendum to be less profound on the healthcare sector as it seems to be on many others. While a third of respondents said Brexit has caused investor sentiment to slow or stop, one in four thought the sector’s defensive properties means investor sentiment is likely to improve. Investors continue to see healthcare as a relatively safe haven. Not expectantly, however, a significant percentage of respondents suggested it was too early to tell. While that could be a reflection of the timing of the survey – 3-4 months after the 23 June vote – the lack of clarity about Brexit means this confusion will be the new norm for at least the foreseeable future.
Perhaps more telling is respondents’ views of the Government attention health and social care policy will receive over the next two or three years. Opinion is broadly divided as to how central health policy will be in the political debate and for what reason, but it’s noticeable that only one third of respondents see health and social care policy dominating the political agenda. Is this a good or bad thing? The survey notes a significant drop in those who feel the new Conservative government is being proactive towards the private sector, and respondents are more sceptical about efforts to integrate health and social. The Barometer also notes that regulatory and political concerns are an increasing barrier to investment, almost as much as rising costs brought about by the living wage.
On the other hand, a dominant theme from this Barometer is that despite the challenging environment in which the sector operates, investors remain upbeat and confident, particularly in the private sector. Challenges remain in the sector, with the lack of good investment opportunities continuing to be a challenge, investment pricing remaining fierce due to renewed interest from overseas investors benefiting from the weaker pound, and with it being dominated by public funding shortages, low staff morale and a constantly changing organisation and governance structures, but 60% of respondents are confident greater opportunities will exist for private sector players, particularly in areas like private pay elderly care. Whatever challenges administrators, politicians and the wider economic landscape throw at the healthcare sector, a marked and growing imbalance between supply and demand caused by a range of factors and driven by an ageing demographic means that investors will likely always be able to identify opportunities for good returns. With our sincere thanks to HealthInvestor for the survey and to all the respondents for your comments and insights, we hope you find the 2016 Barometer a useful measure of current market opinion.
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Partner, Nabarro LLP
Partner, Nabarro LLP