Nursing home group unveils £550m flotation

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The Independent Online

Britain's biggest operator of nursing homes for the elderly, Southern Cross, is to list on the stock market, with a valuation of some £550m.

The flotation marks an improvement in fortunes of the sector, which is dependent on public sector expenditure, after many providers went private or bust in the 1990s.

Southern Cross has 6 per cent of the total beds available in a still highly fragmented market reckoned to be worth £11.7bn a year - Britain's rapidly ageing population means growing demand for the industry.

The company has 578 homes and 28,748 beds and operates under two brands: Southern Cross Healthcare and Ashbourne Senior Living. It also offers services for younger people with physical or learning disabilities under the Active Care Partnerships brand.

Philip Scott, the chief executive of Southern Cross, said: "Residential care is the most appropriate and efficient way to care for the very dependent elderly, and there is increasing demand in the UK today for 24-hour care services to meet the needs of an ageing dependent elderly population.

"Having led the much-needed consolidation of a fragmented market, Southern Cross now has a leading position in the UK care homes sector, with highly respected brands and many opportunities for sustainable growth in future years."

Among acquisitions made by Southern Cross are Ashbourne and NHP, bought for a combined enterprise value of £1.2bn. NHP used to be listed but was one of the operators that collapsed under a mountain of debt.

The initial public offering will seek to raise £275m, which will provide a partial exit for Blackstone, the US private equity group that owns an 88 per cent stake. The management has a 12 per cent interest, with Mr Scott owning the greatest share, but it is understood that most of this holding will be retained.

The Government changed the financing of care in the mid-1990s by transferring funding for nursing homes from central government to local authorities. The local authorities ran out of money and care home operators found themselves with too many empty beds.

Today, local authorities have better systems in place for funding nursing homes and the shake-out of the sector has brought supply into better balance with demand. The top players in the industry now have occupancy rates of more than 90 per cent. The biggest providers after Southern Cross are Bupa, Four Seasons Health Care and Barchester Healthcare. The closest listed rival, Care UK, is a tenth of the size of Southern Cross.

A large number of "Mom n' Pop" operators remain in the industry and one of the objectives of the listing is to enable Southern Cross to make further acquisitions. The company, which has always been in private hands, also aims to grow its higher-margin Active Care business.