Sector Spotlight: UK Healthcare

Leanne Dooley
5 minutes reading time
This article explores the increasing relevance of the Healthcare sector in the UK and the factors driving its growth. It features a UK-based private equity fund and its Healthcare partners to discuss the challenges and opportunities faced by Healthcare companies looking to grow in the current landscape, covering social demographics, the UK labour pool, regulation and future expectations.

From the pressures of an ageing population, issues in public spending, and a more acute awareness of our own well-being, the Healthcare sector is enjoying sustained attention from private equity houses. When looked at globally, private equity investment in the space is producing returns higher than most other industries,[1] and, with PwC forecasting consumer spending on wellness to grow by 20% by 2020[2], the role of private investors in supporting the development of the sector is significant. As part of our Sector Spotlight series, where we speak to private equity professionals across Europe to find out what’s driving prized sectors, we caught up with London-based August Equity to discuss what’s playing into Healthcare’s increasing relevance in the UK, and the opportunities and challenges faced by portfolio companies and sponsors.

Based in the bustling West End, tucked away in a sophisticated forecourt is August Equity, a UK-based investor in small and medium sized service-oriented businesses – from Business Services and Tech, to Education and Healthcare. We meet the team heading up the latter; Garret Turley and Christian Dube, Partners for the firms Healthcare and Education division. The pair combines Dube’s Engineering background and Turley’s past-life in operational buy and build for the Veterinary sector to provide a broad range of Healthcare companies with the strategic insight needed to grow at a target of tenfold.

Why Healthcare?

With the macro-outlook in mind, and touching on the aforementioned factors, Dube discusses why Healthcare remains an attractive proposition, and it isn’t just spend requirements and ageing populations, ‘It seems the Healthcare sector is one of few which avoids the cyclical nature of other sectors, particularly during volatile climates,’ he explains. With Brexit at the forefront, being able to describe any sector as ‘predictable’ is unlikely, yet the essential nature of Healthcare sets it apart from those centred on leisure.  ‘When you think of casual dining and retail for example, this refers to discretionary spend,’ says Dube, ‘Businesses flourish where there is growing demand over a long period of time, and the Healthcare sector is one of the more protected areas through downturns.’

Bridging the gaps

With the NHS and social care system under increasing pressure, and governments and local authorities forced to make difficult decisions on which areas of Healthcare most require financial support, private investors have the opportunity to fill gaps in the funding of essential and non-essential Healthcare services in the UK.

Naturally, this creates sub-sectors within Healthcare where investors are seeing value. August Equity has recently invested in Dermatology, with skin cancer being the fastest growing cancer in the UK. While incidence rates have increased substantially across most age ranges, in 50-59s they have increased by 90%, in 60-69s by 151%, in 70-79s by 207%, and in 80+s by 194%.[3]

Private Equity, including August Equity, is benefiting from the nation’s increasing pro-activity in looking after its own health.  With governmental capacities constrained and ever-long waiting lists, the public is looking to ‘short circuit the waiting lists and pay out of pocket for private Healthcare,’ says Dube. ‘But you have to pick carefully, there are niches,’ he adds. There are price points which make sense for patients, like private Dermatology and Dental Care, on the basis that the NHS will only pay for a certain set of treatments.

People at the heart

While an NHS under pressure and a nation that’s living longer opens opportunities for private investors, the sensitive nature of the sector presents a unique wave of challenges. Any investment in the space requires unprecedented attention to detail and quality, and a management team of top form. ‘One of the big risks in Healthcare is that you’re looking after lives, whether that be people or animals,’ says Turley. ‘Serving someone a poor dinner at a restaurant is very different to a poor quality of service at a care home.’

While it could be argued that the common identifiers of a company fit for investment are sector-wide, such as potential for growth, a niche position and a backable management team, there is an extra emphasis on people when dealing with Healthcare companies. 'What will make them the most successful in their sector is our ability to retain high calibre staff,’ says Turley.  And while Healthcare could be considered predictable in macro terms, when people come into the equation this notion ends.

With UK employment rates at their highest since records began in 1971, the number of people out of work has fallen by 115,000 since last year,[4] and the search for quality staff across all sectors and regions remains a challenge. But is the low wage and taxing nature of the Healthcare industry taking an extra toll on securing its future? ‘In some of our care businesses, because of the nature of the work that they do, it’s really difficult,’ explains Turley. ‘It’s also the lower end of the wage scale, so you get a churn of your employees, which we’re always looking to reduce as much as possible.’

When looking for the right employees in the sector, while pay is important, fulfilment is paramount. Dube and Turley refer to a site visit to August Equity portfolio company, Orbis Education and Care. They had met a patient whose communication skills and welfare had developed significantly since being cared for by Orbis staff, who spoke of the joy that had come from being a part of this process, ‘Those guys were ecstatic with the progress, and that’s fulfilment,’ says Turley.

Further staff challenges are found among Healthcare subsectors, and the demographics of its professionals. The niche skillsets required to work within most areas of Healthcare create a tight labour pool. Turley uses Dermatology as an example; ‘There’s only 800 to 900 Dermatologists in the country,’ he says. And with professional services such as Dentistry, Doctors and Vets attracting the next generation of workers, sponsors must adapt company conditions to suit the changing landscape of the workplace. ‘There are a lot of young people and millennials in Healthcare who want to work flexible hours, so we are having to shift our working practices to the reality of the market,’ Turley points out.


Healthcare regulation is increasing year-on-year and, while Turley and Dube speak positively of the exacting parameters their portfolio companies are directed to, they draw upon the barriers to entry that a highly-regulated industry can cause, noting that larger companies are able to invest in the people and technology needed to ensure regulation is complied with, in both form and spirit. ‘Where we get concerned is when some regulators change policies and haven’t clearly communicated that to the providers, who are then being inspected on areas which have since evolved without their knowledge,’ says Turley. Dube adds to this by explaining that where legislation is centrally commissioned and locally carried out, quality must be monitored and upheld across the regions.  

As well as Healthcare-focused regulation, portfolio companies must remain mindful of national macro legislation such as employment law, IR35, tax law and changes to pension legislations. With all these things creating workload, whose job is it to oversee these issues?

Larger corporates may benefit from a central office which provides support services, taking away the burden of paperwork and administration which smaller sites often find falling onto the desk of practitioners. ‘Vets want to be vets, doctors want to be doctors and dentists want to be dentists. They didn’t do all the training to fill in forms,’ says Turley. The role of private equity sponsors in ensuring the right systems and governance are in place for growing companies is key here. And, while Dube notes the significance of attending site visits to gauge a company’s challenges in real-time, ‘We don’t want to be the suits in London,’ he says, it’s important that sponsors balance the level of involvement. ‘We’re not there to run the business, and if we end up running the businesses then something has gone wrong,’ he says. Instead, by sharing best practice from other portfolio companies, sponsors ensure the management team is prepared for the upcoming growing pains, and provide the financial support, be that equity or debt, to finance strategic positions.

Competitive landscape

Carving the route to a successful exit is a process ‘which begins as soon as a business is bought,’ says Turley, with the sponsor and management team in consistent talks to define and redefine the tenets of a strong business, which could be described as sector-agnostic; to be in a good market, have a quality management team, a growth track record, to be invested in infrastructure, and so forth. For August Equity, exits are typically made through sale to trade or to private equity, as well as pension funds and those looking for longer term holds, yielding and growing mature businesses.

The competitive nature of the sector, particularly in the lower mid-market, keeps activity levels high, preserving the interest in Healthcare from trade and secondary buyers in the higher-market. ‘If buyers see just very niche investment where there’s no historical liquidity of investment or re- investment in the market then companies are much more challenging to sell,’ notes Turley. ‘Competition isn’t a bad thing, it gives an eye and focus on the sector,’ adds Dube, though August Equity rarely comes into direct competition when sourcing portfolio companies, with the majority of its investments approached off-market.

Future findings

There’s no doubt it’s a notable time for the Healthcare sector and its growth potential. The increasing interest in our own wellbeing along with the advancements in technology will provide yet more opportunity in the immediate and long-term future. ‘Communicating with patients is much more streamlined, but technology is also giving people greater control over their health,’ notes Dube. Already the market is seeing developments that enable health monitoring without the presence of a doctor. ‘We see robots going into care homes,’ says Turley.  This technology will also play an important role in capturing data quickly.

While technology won’t yet replace humans and decision-making, it can play a huge role in relieving the aforementioned burden of administration, reducing duplication of efforts and the hours used by doctors and clinicians on what could be done by a machine, freeing up time to focus on more complex required services.



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