In a stinging blow to its prestige, Cinven has walked away from its €675m, August 2007, acquisition of USP Hospitales, leaving the business in the hands of Royal Bank of Scotland and Barclays, who together now own a 65% stake.
Whilst USP Hospitales made an EBITDA profit in 2008, it suffered from a crushing debt burden.
Cinven had borrowed heavily on the basis that USP’s property portfolio had a value separate from the operating business. Cinven is left with a less than 10% stake, with RBS and Barclays owning 65% and management sitting on 25%.
Sales rose modestly in 2008 after the opening of a new state-of-the art hospital in Barcelona, but have been badly hit by falls in discretionary, fee-for-service payments.
Sources close to Cinven said that its two other highly leveraged acquisitions from 2006-2007 – British businesses, the Spire hospital chain, acquired from BUPA, and Partners in Care – are both solvent, and will not be dispatched in the same way.
Let’s hope not – in total Cinven spent over €3 billion on the trio.
Which other private equity firms might face similar issues?
Step forwards Apax, which shelled out 17bn Skr for its acquisition of international hospital chain Capio in September 2007.
Apax paid over 15 times 2005 EBITDA for Capio, although it has managed to claw back quite a bit by selling the labs and the UK operation. Apax also put up almost half the money for the £2.2 billion acquisition by Netcare of the UK hospital chain General Healthcare Group in April 2006.
Others, who could be in a difficult situation, include BC Partners and Axa, who teamed up to buy French chain Medica for €750m in July 2006.
Also affected could be IK Investment Partners, who bought Attendo, the big Swedish care home and healthcare chain in January 2007, and who also purchased Medone, the big Finnish recruitment outfit, in June 2007, both for undisclosed, but presumably hefty, prices.
Both IK acquisitions are, however, known to be performing well.
But Europe is now full of highly leveraged, underperforming hospital groups, such as Euromedica in Greece and Medicana and Medical Park in Turkey.
The decision to walk away from USP is also a blow to the prestige of McKinsey, with whom Cinven has a long and deep relationship, and who advised on the USP deal.
The victors are HG Capital, Bridgepoint and Warburg Pincus, the private equity groups which refused to join the opco/propco bubble and are now sitting on billions to invest when prices finally reach rock bottom.
