The conglomeration visible in these sectors came about during intense periods of M&A, in which smaller players were absorbed and larger entities brought together. This consolidation sought to combine companies with synergistic components and create efficiencies.
The mere prospect of a publically traded company being taken over drives share prices up on the expectation of higher revenues based on the increased efficiency. Royal Dutch Shell’s acquisition of BG Group is a clear example of this. Precedent shows us such deals are incredibly lucrative for principals and spark a flurry of amalgamation within a sector.
Identifying a market where such event driven value creation can be found is a sensible investment strategy. However, most markets of significant scale are largely consolidated and will remain so until regulatory ‘trust busting’ or significant macroeconomic pressures engender change. One area noticeably overlooked by investors, until recently, is the UK specialist care market. US, European, Middle Eastern, Asian and UK investors are beginning to recognise the sector’s strong long term fundamentals as well as the scope for M&A driven returns.
Specialist care is the provision of support for those with learning disabilities, mental health needs and acquired brain injuries. It is a market of considerable size and growth prospects – with the latest Laing & Buisson figures estimating the total market to be worth in the region of £7bn. Laing & Buisson anticipates the market will appreciate at a rate of about 1% per annum, due to population growth and better diagnosis of mental illnesses. The market is supported by strong, inflation protected fee yields charged for care, paid for by Local Authorities.
