Cinven's Healthcare team benefits from the extensive relationships that we have built up over time in the sector, as well as our detailed understanding of healthcare businesses as a result of previous investments. This is particularly important in sourcing proprietary investment opportunities where management teams are searching for a credible partner that can demonstrate its knowledge.

The Cinven Healthcare sector team tracks trends such as these to help identify companies that will be successful in the long term. We prefer market-leading, growing, cash-generative businesses and are particularly interested in:

• companies that provide medical services more efficiently than in the public sector, thereby helping to reduce government spending;
• those whose revenues are government-backed or covered by medical insurance, making them resilient to economic downturns;
• those that can benefit from the transfer of best practice, based on comparisons of global healthcare markets and management; and
• diagnostics and medical technology businesses addressing niche or growing markets, that are looking to expand either through acquisitions or by entering new markets.

Despite the current downturn, all three of the main sub-divisions of the Healthcare sector present investment opportunities: company valuations have fallen, but earnings have, in many cases, held up well. Cinven's Healthcare sector expertise – developed as an active owner of leading businesses – and our international network make us an attractive partner.

Spire Healthcare has changed dramatically since the core of the business was acquired by Cinven from BUPA in 2007. Further acquisitions have made Spire the second largest private hospitals business in the UK. Continuing operational investment and the introduction of private sector disciplines have led to strong growth in revenues and profit margins. In 2009, sales increased 6%* to £614 million, while profits (pro forma EBITDA†) grew 15% to £149 million – despite the recession.

Shortly after Cinven acquired BUPA's hospitals in 2007, we strengthened the management team, bringing in CEO, Robert Wise, and CFO, Rob Roger, followed by a new Chairman, Robert Cooke. In 2008, we made two acquisitions, Classic Hospitals and Thames Valley Hospital. This brought a further 11 hospitals into the group, giving Spire the scale to compete more effectively and provide better national coverage.

A programme of change tackled the bureaucratic culture that previously existed. Central overhead costs have been scaled right back, and progress has been made in reducing operational costs, with further efficiencies still coming through. Daily reporting of key performance indicators creates an environment of constant improvement and improved planning keeps operating theatres busy throughout the week.

Excluding acquisitions, Cinven has invested approximately £100 million in the business over the last two years. This includes a new hospital in Edinburgh, expansion at Spire's Bristol hospital, new operating theatres in Hull and Southampton and 16 new diagnostic scanners across the group. Spire is also now providing cancer services in Portsmouth and Southampton as part of a pioneering joint venture with Cancer Partners UK.

Spire has renegotiated all of its contracts with the private medical insurers, mostly on a multi-year basis. Spire has successfully attracted National Health Service patients under the 'Choose and Book' scheme, helping to offset the recession-driven decline in revenues from self-pay customers.

Spire's transformation programme and continued investment by Cinven are getting results. With the role of the private healthcare sector set to increase, Spire has every reason to be optimistic about its long-term prospects.

^* As per unaudited management accounts
^† EBITDA: earnings before interest, taxes, depreciation and amortisation