£70m hospitals sale will revive Transform’s fortunes

THE owner of North West plastic surgery group Transform Medical is close to selling its private hospitals business Abbey for around £70m, TheBusinessDesk.com has learned.

Debt-ridden Covenant Healthcare Group will just be left with Altrincham-based Transform when the Abbey deal completes in the next month.

Abbey’s four hospitals, in Liverpool on the site of University Hospital Aintree, Gisburn in Clitheroe, Ayr and Stirling, are to be bought by General Healthcare, the owner of BMI Healthcare.

A source said: “The negotiations are at an advanced stage and the result will be a completely new refinanced Transform business which will include a deal on Abbey Hospitals.”

The deal will end almost two and a half years of uncertainty for Transform, since parent Covenant first breached its loan covenants with HBOS, now part of the Lloyds Banking Group.

The group was unable to sustain the huge debt that had been heaped on it following its sale in 2005 to mid-market private equity firm Cognetas from Phoenix Equity Partners for £170m, with around £90m of the funding from HBOS.

Chief executive Nigel Robertson has admitted that uncertainty over the future ownership of the group had held back investment the business and impacted on performance.

He told TheBusinessDesk.com: “The history of the business is that it had the classic problems of a UK plc of being overleveraged with three businesses tied together that didn’t have synergies.

“But it was done in a marketplace when these deals were done. I came in about 18 months ago to reorganise and restructure it.”

Newly filed accounts at Companies House show uncertainty over its future and the general economy continued to hamper Transform’s performance in 2009.

The company, which employs around 300 staff, saw turnover fall 8.4% to £37.9m for the year to the end of September 2009, from £41.4m a year earlier.

Profits also continued to fall, 45.8% to £2.6m from £4.8m in 2008, reflecting the corporate restructuring costs within the business.

Auditor Ernst &Young expressed their concern about the company’s ability to continue as a going concern, should its lender decide not to renew the group’s covenant waiver on a monthly basis.

Covenant’s accounts for the same period show the group incurred a pre-tax loss of £19m (2008: £7.9m), while group borrowings with the Bank of Scotland have increased to £100.9m (2008: £89m).

In their report Transform directors said trading performance had been “reasonable”, given the downturn in economic conditions which it admitted had impacted on turnover.

The report said: “The directors consider that the sector in which the company operates offers long term growth prospects although in keeping with the economy as a whole will experience some downturn in current trading due to tighter economic circumstances.”

Mr Robertson said the business will see the benefits of its new London hospital, opened in June 2009, in the current 2010 financial year and added that the business was performing “on a level with last year”.

He said: “In the current economic climate it is a very good performance. We are in the process of opening new clinics and it was only at the very end of the last financial year that our new London clinic was up and running properly. We are now seeing the benefits of having that new state of the art hospital.

“The restructuring means we can now concentrate our efforts on developing the business as the new model will be ideally placed. It will be a fully integrated business, with two state of the art hospitals, in Manchester and in London, and will expand over the coming year.”

The group completed the sale of its Churchills business to Cambian Healthcare, when it sold its remaining London hospital earlier this year.