UK private equity firm Doughty Hanson won approval from its investors this week to continue dealmaking following the unexpected death of founder Nigel Doughty.
Doughty’s tragic death from a suspected heart attack at the weekend activated a key man clause. The clause – a standard inclusion in fund documentation – barred the firm from making new investments. But LPs in Doughty Hanson’s funds moved rapidly earlier this week to vote in favour of a resumption of dealmaking activity.
A source close to the firm said the speed with which LPs had agreed to a resumption was a sign of their confidence in the Doughty team.
The move allowed the firm to agree on Thursday the acquisition of Spanish hospital group USP Hospitales for €355 million. The price paid represents a 9x multiple to the company’s forecast earnings for 2012.
The deal has initially been funded entirely with equity, according to a source close to the process. Rothschild advised on the buyout.
Doughty acquired USP from banks Barclays and Royal Bank of Scotland. The pair took control of USP in May 2009 after it defaulted, causing owner Cinven to reportedly lose its entire €175 million investment.
Cinven senior partner Hugh Langmuir spoke candidly to PEI in late 2010 about the firm’s failure with USP, saying: “We had a hospital deal in Spain which we couldn’t fix, again I think largely because of macro factors. At that stage there was no talk about sovereign debt issues. Nobody questioned the ability of governments to honour their debts, but we found the Spanish government moved to slow down their payment cycle and we were faced with a very different set of business issues than we expected from the time of the investment in a sector where we are very much expert.
“Ultimately our job is to ensure that our investors get the best possible returns, so we work very hard for recovery. But what we don’t do is put more money into situations where we think ultimately the situation is not redeemable,” he added.
But despite ongoing sovereign debt issues in Europe and the volatile economic environment, Doughty believes the Spanish healthcare market remains an attractive one.
“USP is a strong company operating in an attractive sector,” said Doughty senior principal Francisco Gutiérrez Churtichaga in a statement. “With demand for private healthcare services growing strongly in Spain, we not only see significant potential for future growth but also believe the company offers a unique platform from which to create a larger hospital group.”
USP is the third-largest hospital operator in Spain, with its 12 hospitals, one specialist clinic and 22 auxiliary clinics accounting for 5.5 percent market share last year, according to Doughty.