Spire reaches for London IPO

LONDON (The Deal) -- The U.K.'s Cinven on Wednesday launched a London IPO for Spire Healthcare plc that the U.K. hospitals operator hopes will value the company at about 1.5 billion pounds ($2.5 billion) including debt.

The IPO calls time on a short-lived auction process conducted by Bank of America Merrill Lynch and Morgan Stanley, which Spire ended soon after learning in April it had escaped compulsory disposals after the Competition and Markets Authority concluded a probe into the private healthcare sector.

"Trying to engage with the public markets in advance of that would have been difficult," said Spire CEO Rob Roger. "With the clean bill of health it became my No. 1 priority to move forward on the IPO."

Spire plans to sell about 315 million pounds of new shares and an undisclosed amount of shares held by Cinven and Spire directors. It expects to make its debut in around late July with a market value of about 1 billion pounds, a person familiar with the situation said.

Spire has invested 509 million pounds in building the business to a chain of 39 hospitals and 13 clinics since Cinven's purchase of Spire in 2007 for 1.44 billion pounds, or 14.3 times forecast Ebitda at the time, from healthcare insurer British United Provident Association Ltd.

Roger wouldn't put a figure on Spire's future capital expenditure. But he said the company's expansion outside London can be financed from future cash flows. Planned regional expansion includes a new hospital in Didsbury, near Manchester, northwest England; two other hospitals in undisclosed locations; and the establishment of about four radiotherapy centers on top of a recently opened center in Bristol, in southwest England,

For London expansion, which Spire kicked off with the purchase of St Anthony's in the suburbs of South London from a Catholic trust last month, Spire will need to assess additional funding options, Roger said. Spire hopes to open two new-build London hospitals at undisclosed locations; the average cost of building a hospital in London is more than £100 million, compared with £45 million outside the capital, noted Roger, a former CFO of attractions operator Tussauds Group Ltd., now part of Merlin Entertainments plc.

Roger also said Spire will consider bidding for two London sites rival HCA Inc. has been ordered to divest following the CMA antitrust probe. HCA is currently challenging the regulator's decision.

"There aren't many individual sites for sale. We would obviously be on the lookout for them but I would have to be convinced in each market that there is substantial growth," added Roger. "Our focus over the next three to five years is on the U.K. market," he said, noting that he may consider overseas expansion after that.

Spire has new debt facilities of 525 million pounds, of which 100 million pounds is undrawn.

The company is the second-largest private chain in the country, behind South African-owned BMI Healthcare. The largest overall hospitals operator is the government's taxpayer-funded National Health Service.

Spire's business with the NHS accounted for 25% of its 2013 revenue, with 54.4% coming from private medical insurers and 17.1% direct from patients.

Spire had 2013 revenue of 764.5 million pounds and Ebitda after rental costs of 154.1 million pounds. The London company on Wednesday reported "strong revenue growth" in the first quarter and beyond, and said Ebitdar, including rent, was 56.1 million pounds in the first quarter, up 7.5% year-on year.

The company sees the U.K.'s economic recovery fuelling demand for private medical insurance, which will in turn bolster its business, as will a growth in NHS outsourcing as the service grapples with an expanding funding gap.

Cinven expects the IPO to put at least 25% of the company in free float, with a greenshoe taking that figure to a potential 28.75%.

Bank of America Merrill Lynch's Dan Rosenfield, Simon Davy and Craig Coben, and JP Morgan Cazenove Ltd.'s Laurence Hollingworth, Greg Chamberlain and James Mitford and joint global co-ordinators and joint book runners. A Morgan Stanley team including Matthew Jarman, Ben Grindley Henrik Gobel has those same roles, and along with JPMorgan Cazenove is also joint sponsor. Co-lead manager is a Numis Securites Ltd. team including Michael Meade and Rupert Krefting.

A Freshfields Bruckhaus Deringer LLP team led by by Mark Austin, Doug Smith, David Higgins and Victoria Sigeti are providing Spire's legal advice, alongside Allen & Overy LLP.

--Jonathan Braude also contributed to this report.

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