There was a lot of optimism around at the start of 2020. Operators and investors we spoke to had a ‘C’ word on their lips. That word was consolidation. Whether it was the enticing prospect of consolidating the €26bn dental market, or IPOing the world’s most internationally diversified for-profit service operators, HBI’s digital pages were brimming with plans. Another ‘C’ word, sadly, had a different idea.
When COVID struck most geographies in February / March, the blossoming Spring M&A landscape froze over, as budgets were hastily redrawn and for some groups, success was measured not in terms of EBITDA growth but simply staying afloat. Deal volumes dropped, of course. It became all but impossible to inspect a facility or shake on a deal (physically, yes, but practically too) during the worst of lockdown. “We’ve pushed the deal back to Q3 or Q4” was what we often heard. Well, here we are now. Has there been a thaw?
As HBI members can read in this week’s lead story, some deals have been done, and the middle market is certainly picking up. UK, Czechia and Poland-based ophthalmology group Optegra found a buyer last week for an undisclosed price. Life Healthcare has sold its Polish subsidiary Scanmed, but has had to impair the asset.
Where deals have been done of any size, like Elsan, investors have been clumping together to share the risks as well as the benefits. But everyone is still waiting for that one big deal eye-catching deal which will set the bar and announce ‘we are back in business’. And we hear a lot of chatter about whether the EBITDA some businesses are being sold off can be trusted, as no one is selling off actual figures, because in some cases, for months they were unable to trade this year. Would you buy a business leveraged double-digits off a proforma EBITDA constructed from a partially worked year, and synergies it had been impossible to establish?
And yet, investor sentiment is good, we keep hearing. Deal discussion is high. Faith in the sector is high – it’s certainly a lot better than retail and many other competing sectors. Is an IPO an option? Given Bridgepoint’s recent withdrawal of global renal care group Diaverum – admitting frankly it wasn’t getting the price it wanted in the current climate, perhaps not.
So where is the play? As the prospect of coronavirus receding becomes realistic in the wake of ground-breaking swift vaccine developments, the other ‘C’ word is suddenly back in vogue, but on a much smaller scale. We’re hearing that a glut of smaller assets, from soon-to-be retirees and small one-man-bands looking to nestle in the security of a larger organisation, are out there. Quality will be variable but for the savvy buyer willing to take the risk of buying small and piecemeal – if PE, perhaps at the start of their investment cycle with money to spend and time to build – there’s an awful lot that could be done.
But the bigger fish won’t want to hunt in such shallower waters. The question we were asking at the start of the year was ‘who will consolidate the consolidators?’ – that question does not appear to have an immediate answer. As soon as one becomes apparent, you will read it here first.We would welcome your thoughts on this story. Email your views to David Farbrother or call 0207 183 3779.