BUPA sells hospitals to private equity firm
* Julia Kollewe
* guardian.co.uk, Monday 18 June 2007 14.37 BST
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BUPA has sold its 25 private UK hospitals to the private equity firm Cinven for £1.44bn, to focus on its main health insurance business.
Cinven beat off tough competition from CVC, which also made it through to the final bid round, and other private equity groups including Guy Hands' Terra Firma.
Its healthcare experience gave Cinven the edge over rival bidders. The firm already owns Partnerships in Care, a provider of specialist mental health services which operates 940 beds in 17 facilities around the country. Its previous investments include General Healthcare and Générale de Santé in France.
Britain's traditional private hospital market is dominated by six players: the NHS and five private groups, including BUPA. Of those, two have already been acquired by private equity firms.
General Healthcare, which runs 49 private hospitals in the UK, making it the biggest operator, was sold last year to a consortium led by the South African healthcare group Netcare and the private equity firm Apax. HCA International, which owns six hospitals in London, including the Harley Street Clinic and the Wellington Hospital, was bought by three US private equity firms last July.
The sale price was higher than expected - when the hospitals were put up for sale in early April they were expected to fetch up to £1.25bn.
"I expect some degree of consolidation in the sector beyond where we are," said Graham Kendall, acting general manager at NHS Partners. "We're going through quite a shift at the moment. The government has encouraged independent providers to get into the [healthcare] market."
BUPA, Britain's biggest medical insurance provider, said the sale would not affect its insurance customers, who will have access to the same 230 hospitals as before.
"The separation of our hospitals from the insurance business will allow the two, as separate entities, to fulfill their potential and make a greater contribution to the UK healthcare economy," said chief executive Val Gooding. "We are confident we will continue to enjoy a good relationship with the hospitals group under its new ownership."
BUPA will use the sale proceeds to pay down debt and to invest in the group. Hospitals accounted for just 11% of its business last year, with three-quarters coming from health insurance and the rest from care homes for the elderly. The company controls 40% of the health insurance market in the UK. It is a not-for-profit organisation, which reinvests any surplus into the business.
BUPA announced in early April that it was in talks to sell off its UK hospitals, with Citigroup appointed to handle the deal.
It set up the hospitals in the 1970s to ensure its insurance customers had sufficient access to private healthcare. As the number of private hospitals in the UK has increased, BUPA no longer feels the need to run its own hospitals.
"The two businesses have to be run at a complete arm's length for competition reasons," a spokesman explained. In 2000, BUPA was blocked from buying Community Hospitals on competition grounds. The sale of the hospitals will make it easier for the company to expand further.
It has also ventured overseas, to countries including Spain, Australia, Denmark and the US, where it now generates a third of its revenues.