This article is provided to FT.com readers by mergermarket—a news service focused on providing actionable, origination intelligence to M&A professionals. www.mergermarket.com
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Second round bids for LGV Capital-backed Craegmoor are due in on the 11 June, people familiar with the situation told mergermarket. Advent International, Southern Cross and two other bidders still remain in the Rothschild-run process.
Calls to LGV Capital were not returned.
Of the six sources interviewed, all agreed that the prospective bidders could be looking at ways to unlock the valuable property portfolio which, according to a recent valuation, was worth GBP 377.4m. One source cautioned that this was a business valuation rather than true market worth.
Another source claimed that Advent could well be the last remaining buyer in what he believed was a difficult sales process. However, others familiar with the situation said that the process remains pretty fluid with at least three to four parties planning to submit bids next week.
At first glance, Craegmoor looks a difficult investment proposition. The company is split into three businesses: nursing homes, hospitals and specialty care. Combined, the three businesses saw a drop in 2007 revenues of GBP 7m to GBP 164.1m, from GBP 171m the previous year. Its specialty care business saw a rise in occupancy last year but this was in contrast to a drop in occupancy in both its nursing homes and hospitals business due to difficult market conditions and refurbishments respectively.
One source said that Craegmoor had very low self-pay occupancy numbers in its nursing homes business, which made it more reliant on local authority funding.
Yet the stagnating top line performance was in contrast to an improvement in its cost base, which saw EBITA margins almost double from 6% to 11%, leading one private equity source not involved to wonder whether there remained further opportunities to take costs out.
Another factor to take into account is the capital expenditure requirements of the business. In September, the company as part of its refinancing that saw its securitised bondholders replaced with GBP 255m of bank debt and loan notes, took on a GBP 10m capital expenditure facility. The private equity source sid he believed GBP 10m was not enough.
As a result, those interviewed agreed that splitting the business up and/or leveraging its property portfolio may seem the most attractive features for Craegmoor going forward.
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