We are approaching the time of year when photos of people in corridors in hospital A&E units waiting to be treated traditionally hit the front pages.
If nothing else, it’s a reminder of the pressure the NHS is under and that a solution to tackle the country’s expanding health care requirements has yet to be found.
This growing demand is also a prime reason why AIM-listed Totally PLC (LON:TLY) has just acquired Vocare, one of the UK’s largest urgent care, 111 helpline operators and GP out-of-office service providers.
The deal marks a huge step up for Totally, which boasted sales of £3.7mln in its latest half year. Revenues came mostly from three acquisitions made in 2016.
Vocare, though, has sales of nearly £80mln, a workforce of almost 2,000 and contracts in 11 NHS regions.
And rather like the NHS, Vocare has had problems.
In three areas the Care Quality Commission (CQC), the regulator of care services in the UK, recently marked its service inadequate while in two others there was a recommendation that improvement was needed.
A red flag? Not according to Wendy Lawrence, Totally’s chief executive, who believes the CQC reports helped its own due diligence.
“The CQC audits are very detailed. There should be no more surprises as it has gone over everything,” she told Proactive.
Totally was not in charge when the problems occurred (it completed the acquisition two weeks ago) and Lawrence says action has already been taken to improve performance.
Leadership and inadequate processes and systems were at the root but Vocare’s clinical care was rated ‘good’ by the CQC, she points out.
“We have added to a solid clinical governance framework, both at managerial and director level, alongside experienced clinical managers who are used to working with CQC.
“We are also working with the staff in areas that need improvement, and supporting them to make the changes required.”
The structure of the deal now means only £6.5mln of the £11mln consideration will be paid upfront in cash to ensure the owners, who are staying on, are incentivised.
Buy and build
Totally sees Vocare as the hub of an out-of-hospital care ‘buy and build’ strategy.
New guidance this year for the commissioning of integrated urgent care services by the NHS will make them even more important.
At present, the clinical commissioning groups (CCGs) that award contracts for the NHS can put out to tender each of the 111 helpline, urgent care and out-of hours GP services separately, which usually results in different providers for each service.
Going forward, CCGs have to tender for Integrated Urgent Care Services and therefore a single organisation will be able to provide all three services.
Vocare is one of only of a few companies currently approved for the entire range of urgent care, 111 and out-of-hours services.
Added to its presence in most of the NHS’s operating regions, this presents a ‘massive opportunity’ for Totally.
NHS a huge outsourcer
Lawrence, who spent more than 20 years working in the health service, says patients don’t appreciate how much the NHS outsources already.
The annual outsourcing budget for the NHS back in 2014 was £20bn annually and has increased year on year since that time, but even those colossal sums are proving to be inadequate.
“The health service cannot cope with the level of demand placed on it, which is only going to grow with an ageing population, greater co-morbidity of long term conditions such as diabetes and obesity and people generally living longer.
“A lot of these people don’t need to be in hospital and should be supported with care closer to their homes and helped to better self manage their health and well-being”
Vocare a big deal
But will Totally be able to cope with an operation as large as Vocare?
Growth at the newly acquired business has been rapid.
Revenues rose to £76.8mln in the year to March from £32.4mln two years earlier or 137% over the period.
That pace of growth may have been behind Vocare’s recent problems, but Lawrence believes the three acquisitions Totally made in 2016 have provided valuable lessons it can draw on.
Premier Physical and Optimum Sports are both independent physiotherapist service providers while About Health is an out-of-hospital dermatology, and referral management services provider.
Dependent on their performance, the final consideration for the trio might rise to £15.1mln.
Totally’s interim losses this year were just shy of £1mln, but with the addition of Vocare, brokers believe a small underlying profit is possible in the year end March 2018 – the new year end following the acquisition.
Broker Cenkos is predicting underlying profits [EBITDA] of about £1mln for the following year to March 2019.
More deals likely
A funding in March ahead of the Vocare deal raised £17.6mln at 55p, which was more than planned and has given some leeway for further deals.
Lawrence said another purchase was under consideration at the time it was looking at Vocare and this may go ahead early in 2018.
No other details yet, but another provider of out-of-hospital services would seem likely as Lawrence sees this as a market that is only going to grow given the strain on the NHS.
“As long as people receive the care they want, where they want it and at the time they want it, they don’t mind where it comes from.”
Totally is valued at £21mln at 35.5p.