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Has Spring finally sprung? Q1 market update
It would be fair to say that 2015 was a topsy-turvy year for the independent health sector and if Q1 is anything to go by, 2016 looks set to be just as eventful. On January 4th, as most of us were still renewing gym memberships and breaking various New Year’s resolutions, US-owned Acadia Healthcare got the year off to a blockbuster start with their £1.3bn acquisition of the Priory Group.
Given that Acadia already owns Partnerships in Care, the deal has immediately triggered a Competition & Markets Authority (CMA) intervention, which is likely to lead to a quiet few months for the group. However the American business has been both bullish and vocal about the potential synergies between the two UK operators and one would expect to hear talk of a merger intensifying later in the year, provided they can secure an ‘all clear’ from the CMA.
If ‘what do you make of the Priory situation?’ is the first question people in the sector tend to ask me at present, then ‘what on Earth is going on with Cambian?’ is invariably the second. Three profit warnings in four months has led to a significant collapse in the group’s share price and 2016 is now likely to be a year of retrenchment and rebuilding for the business. Cambian is by no means the only organisation trying to navigate stormy waters however. In the care home sector, Four Seasons continues its epic battle to stay afloat whilst Bupa has announced a partial write down of the value of its care home business, to the tune of £181.9m.
My previous ‘Predictions for 2016’ blog was an exercise in doom-mongering which even the Mayans might have described as ‘a bit pessimistic’ and, based on the above, it could be argued that I was right to forecast the end of the world as we know it.
It’s not all doom and gloom however; far from it. Thus far this year I have been pleasantly surprised with activity levels across the sector. In the independent hospital sector, Spire has just posted a set of results which included a 3.4% increase in revenue and Chief Executive Rob Roger, who leaves in the summer, will surely leave behind an impressive legacy on which the new management team can build. There has been a lot of Board-level change at Spire and it’s great to see some top ‘out of sector’ talent joining the fray, undoubtedly attracted by the prospect of working for a solid FTSE250 business. Ditto Nuffield Health, with a brand new top team (and a nifty new website to boot), the hospital sector is one to watch in 2016.
From a staffing perspective, there is a notable drive to improve previously neglected Human Resources departments across the sector. Incredibly, the likes of HCA, Spire, Nuffield, Cygnet, Priory, Barchester, The London Clinic, Horder Healthcare, St Andrew’s and Voyage Care have all made senior HR hires in recent times as the sector pushes to improve historically shaky employee engagement and retention rates, whilst continuing to fight for the best external talent. I’ve had the pleasure of being involved in some of these hiring processes from an interim management perspective and I’ve been struck by what a difference that really strong HR leadership can make. I have also noted a renewed interest in Interim Hospital Directors and have been engaged by both acute and mental health hospital operators to assist in this regard. Finance continues to be one of the only relatively stable areas on provider Boards – the sector’s CFOs must be doing something right!
Finally, I’m pleased to say that the discourse around the National Living Wage appears to have settled somewhat. Having heard about nothing else in H2 of 2015, the mandatory wage increases now appear to be ‘priced in’ to most business’ plans and providers are pressing forward with growth strategies. Whilst there are still storm clouds gathering around certain areas of the market (I’m looking at you, care home operators), I find myself feeling positive about the general outlook for the sector this year. Those sector Chief Executives and Chairs who attended our first annual Private Healthcare breakfast event last spring will undoubtedly be delighted to hear that this year’s plans are taking shape nicely. We’ll be making a more formal announcement shortly and we look forward to once again welcoming the sector’s leaders for a second round of early-morning networking (and a decent fry up).