Pharma and healthcare in merger buzz as two £1bn deals agreed

The UK pharmaceuticals and healthcare sector was buzzing with merger activity on Wednesday as two £1bn deals were agreed by company executives.

Ramsay Health Care swooped for Spire Healthcare that would create the UK’s largest private hospital group, while private equity’s Carlyle snapped up London-listed inhaler specialist Vectura.

Shares of Vectura jumped 32 per cent to 161.45p by early afternoon, while Spire’s surged 27 per cent to 245.5p.

The move by the US buyout group is the latest example of a push by private equity into the UK market as it seeks to capitalise on lower valuations following the pandemic and uncertainty over Brexit.

Buyout groups are interested in the pharma and healthcare sector because it is considered more resilient to downturns than others and better placed to benefit from demographic changes such as ageing populations.

Carlyle agreed to buy Vectura in a cash deal that values the company at about £958m, a premium of about 27 per cent to the closing price of 122p a share on Tuesday.

Investors in the FTSE 250 group will receive 155p a share, made up of 136p in cash from Murano Bidco, a company controlled by Carlyle funds, and a 19p cash dividend.

Vectura is one of the few companies globally that manufactures devices that deliver a broad range of complex inhaled therapies.

In the Ramsay deal, the Australian private hospital group agreed to buy Spire as the paid-for sector benefits from a pandemic-induced backlog of patients from the NHS.

Under the terms of the transaction, Spire shareholders would receive 240p a share in cash, which is a 24.4 per cent premium to the company’s closing share price on Tuesday.

The deal values Spire’s share capital at about £999.6m on a fully diluted basis and gives it an enterprise value of just over £2bn including lease liabilities. 

Spire has 47 hospitals and clinics in the UK while Ramsay has 37. The combined group would overtake BMI/Circle, which merged in 2019, as Britain’s largest group.

Craig McNally, chief executive of Ramsay, said it aimed to be the “go-to provider” in the £5.8bn UK private hospital market.

“This will provide us with a broader platform to take advantage of the opportunity for sustained growth,” he said.

Justin Ash, the chief executive of Spire, was awarded a £300,000 bonus in March, which came on top of his £1.2m pay package in 2020.

Any takeover would potentially enable him to take long-term share options that were awarded at the height of the pandemic in April last year, worth an estimated £2.3m.

Victor Chua, consultant at Mansfield Advisers, described Ramsay’s purchase as a “smart move” for the group, which receives 80 per cent of earnings from the NHS, as it would give the Australian company access to Spire’s revenues from private paying patients. These are growing as a result of long waiting lists for state-funded treatment.

Spire earns 30 per cent of its revenues from the NHS with the remainder coming from private medical insurance and patients willing to pay directly from their own pockets.

Earlier this year, the NHS also signed a £10bn framework contract with private providers to use their services.

Spire’s directors plan to recommend unanimously that shareholders vote in favour of the deal, which is expected to be completed in July, though a rival bidder could come forward. It could also face challenges from competition authorities, which may require divestments.

Mediclinic, the Middle Eastern hospital operator which has a 30 per cent shareholding in Spire, has also said it will vote in favour of the deal unless there is a competing offer 10 per cent higher than Ramsay’s.