Qatari fund amasses £3bn in care home assets

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The Independent Online

Three Delta, the Qatar-backed investment fund trying to take over J Sainsbury, cemented its position as one of the UK's largest private provider of care homes yesterday, when it paid £270m for Care Principles.

The value of the fund's healthcare assets is now more than £3bn.

The deal was one of a pair announced yesterday showing the infatuation of City financiers with the sector. The other was the sale of Healthcare at Home, a provider of domiciliary care, by Apax Partners to investment firm Hutton Collins.

A third transaction, however, could hit the rocks due to the meltdown in the credit markets. BC Partners is thought to be examining pulling the plug on its €2.5bn (£1.7bn) auction of Hirslanden, a Swiss hospitals group. Investors were set to submit final offers this week. If they come in with a lower bid, given the increased difficulty in raising cheap debt BC could pull the auction, sources said.

The City, led by private equity firms, has been rolling up smaller care providers in recent years as the Government seeks to reduce the pressure on hospitals by farming out chronic care. The result is a clutch of larger groups mashed together by buyout firms. Cinven owns Principles in Care, a large care provider; HG Capital owns Paragon, another such group; and ABN Amro controls the Priory.

Southern Cross Healthcare, which was listed last year on the stock exchange by owner Blackstone, is the UK's largest publicly traded nursing homes provider.

The buyout industry is attracted by the UK's ageing population, and by the fact that the Government is the main client for most of these businesses. Many of these groups also have large real-estate portfolios, collateral against which large amounts of debt can be raised.

Mike Turner, the partner at 3i who sold Care Principles, said: "There has been a lot of investment in the sector because there is a clear view that it is going to grow. The Government just can't put in all that is required into these fixed assets like homes. So they have essentially outsourced the capital requirements to the private sector and then pay it back though the care."

Three Delta, which also owns the nursing home giant Four Seasons Healthcare, may roll Care Principles into that group, along with another of its companies, Senad. Or it could set up a separate group comprising Senad, Care Principles, and the specialist care unit of Four Seasons.

The deal means a tidy return for 3i, which first invested £1.5m for a 38 per-cent stake in the group in 1997. The firm then engineered a full buyout of the company in 2005.

The Government is wary of allowing the formation of a few large care providers, because it would reduce its leverage when negotiating rates. But Mr Turner said: "I think the Government will realise that consolidation is the right thing to do. They don't need 20 buyers, they need five buyers who will have the wherewithal to make investments."