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Compass sells health division

Compass Group has sold its healthcare division in a pounds 178m deal that could make the top 50 managers of the business millionaires, writes John Shepherd. Senior and middle management are being offered the chance to take a 10 per cent equity stake for a total outlay of pounds 500,000 by CINVen, the venture capital group that is buying the business.

The healthcare company, which operates 15 private hospitals and no longer fits the global expansion strategy of the contract catering core of Compass, is headed by Nigel Harris.

CINVen is paying an initial pounds 170.8m, and will repay an pounds 8m loan after eight years or before if the business is either sold or floated on the stock market. The venture capital company also harbours plans to recoup some of the purchase cost by selling small equity stakes to other investors.

Roger Matthews, finance director of Compass, said the sale would help to cut the group's pounds 442m of debts amassed over the last couple of years from the purchase of Canteen Corporation in the US for pounds 300m and the recent pounds 500m acquisition of Eurest in France.

Shares in Compass yesterday rose 5p to 450p in a lacklustre stock market. Compass will also book a profit of up to pounds 25m on the deal, relating to the write-back of goodwill and the surplus over the carrying value of the hospitals in the books.

Francis Mackay, chief executive and deputy chairman, said the disposal was a natural extension of Compass's strategy to focus on catering.

Simon Rowlands of CINVen, which recently conducted its own mangement buyout, said it would continue to reinvest in the hospitals at a rate above depreciation. The hospitals made pounds 16.4m of profits on turnover of pounds 69.7m in the year to 1 October. Depreciation equates to 7 per cent of sales, almost pounds 5m.