Doughty Hanson set for £500m sale of Priory

Priory Healthcare, the group of psychiatric hospitals that has helped celebrities like Kate Moss, Paul Gascoigne and Ronnie Wood tackle their addictions, is being lined up for a possible sale later this year by owners Doughty Hanson, the private equity group, which may value the group at up to £500m.

Priory Healthcare has changed hands a number of times recently and should Doughty Hanson be successful in selling its controlling 86 per cent stake later this year, the Priory will fall to a third owner in six years. Westminster Healthcare paid £100m for the 35-clinic chain in 1999, when it was owned by Mercury Private Equity. It was subsequently sold to Doughty Hanson in June 2002 for £288m, after having been merged with Westminster's Specialist Healthcare Division.

The private psychiatric healthcare sector has not been without its critics, who fear that vulnerable patients are often persuaded to fork out exorbitant fees but insufficient NHS treatment centres and an ever-increasing number of people suffering from mental health problems and addictions have inadvertently created a boom industry.

Affinity Healthcare, which operates two hospitals with approximately 177 beds, was purchased by private equity house Duke Street Capital in December, for £75m. The much higher-profile Priory Healthcare, in comparison, operates 35 hospitals with over 1300 beds.

Sources confirm that although the Priory has been pencilled in for possible flotation in 2005, a trade sale to another private equity group is more likely.

Detailed work on a sale will not begin in earnest until the General Medical Council has completed its hearings into allegations of serious professional misconduct on the part of the Priory's chief executive Chai Patel.

The case, which begins on January 21, relates to accusations of mistreatment of residents in a Twickenham old people's home run by Westminster Healthcare - and Dr Patel, who was then chief executive of Westminster, could be struck off if found guilty of the serious professional misconduct charge he faces.

Neither Priory nor Doughty Hanson would confirm yesterday if Dr Patel would stay in charge of the Priory Group should the GMC case go against him.

Investment banks are known to have been pitching for advisory roles but it is thought that Priory will stick with Rothschild, who advised them when the company was sold to Doughty Hanson.

In 2003, Priory Healthcare paid dividends of £47m to shareholders, despite making an operating profit of just under £14.5m. This huge pay out was covered by the revaluation of property assets, even though the company only actually realised £610,000 from asset sales. Management, including Dr Patel, own 14 per cent of the equity - so shared over £6.5m.