New research shows that SME growth provides the best prospect for economic recovery in the UK. But, as private equity firm ECI notes, finding the cash to reach out to global partners and markets can be a critical hurdle.

With continued pressure on governments across the Western world to reduce their expenditure, together with sustained macro-economic uncertainty and a tightening of bank funding, times are not necessarily easy for the average healthcare company – which often relies on the public purse for reimbursement and debt funding for growth. One might therefore expect the short-term outlook for growth to be somewhat muted, despite the backdrop of positive longer-term demographic drivers of demand.

Hence it is interesting that a recent survey of UK SME businesses by ECI Partners, a UK-based midmarket private equity firm, has found executives to be generally positive about growth prospects over the next 12 months, with 74% of respondents anticipating headcount growth and 60% expecting double-digit turnover growth.

The results met with a warm response from the Government, with Mark Prisk, Minister of State for Business and Enterprise, saying: “It’s good news that despite a tough few months, nearly three-quarters of the SMEs surveyed by ECI are looking to recruit over the next year and half expect to see substantial profit growth in that period. Up and down the country, it is Britain’s SMEs that are driving our economic recovery.”

Reaching out

This year, the survey conducted each summer by ECI Partners gained responses from a total of 246 chief executives from UK growth companies from a range of sectors with turnover between £10m and £200m. The results paint a positive picture against the gloomy economic backdrop of the Eurozone crisis and sluggish UK economy, and suggest that there remains growth potential amongst SME businesses – which account for around a third of UK private sector employment.

Steve Tudge, a Managing Director of ECI, commented: “Despite the barriers to growth, which are principally cited as a weaker macro-environment and funding constraints, we continue to be optimistic about the prospects for good mid-market companies.”

Executives see the key growth drivers to be increasing international sales – with Europe and the USA remaining the dominant international markets, though India and China are becoming more important – and organic growth through investment in sales and marketing and new product development. Over 40% of companies are also planning to increase their use of overseas suppliers to improve their margins.

Internal cash flows are viewed as the most likely source of funding for this growth, though around half of respondents say they are likely to seek bank debt within the next 12 months (despite continued complaints about its cost and due diligence requirements) and around 40% are also likely to look at private equity backing. Fewer than 10% of companies see the public markets as accessible, perhaps reflecting the recent volatility and liquidity issues associated with the AIM market.

Healthcare respondents are less bullish about high growth than their peers in other sectors, and are noticeably less positive about growth than they were last year. This no doubt reflects, in part, the political uncertainty surrounding the current UK healthcare reforms and the public sector spending constraints that are impacting on the health and social care sectors.

Despite this, companies remain more confident of raising growth financing – and of raising it from private equity firms, with over 50% saying that was a likely consideration over the next year.

Financing growth

What does all this mean for SME healthcare businesses in the UK? The sector certainly faces challenges in responding to Government spending cuts, which are tending to put pressure on margins if not always on volumes.

However, opportunities for growth remain amidst these challenges, particularly for companies who are able and willing to venture beyond the UK in order to seek new customers and cheaper suppliers.

Of course, this internationalisation can put a strain on smaller businesses, which may lack the scale to fully support an international infrastructure. Private equity groups with experience and expertise in this process can potentially offer support to management teams in this position – whether by making introductions, sharing best practice or simply financing the required infrastructure.

There are significant sums of capital available for investment from the UK private equity industry, and there remains an appetite to invest in market-leading healthcare businesses. Thus private equity should be considered seriously as an option by management teams in the healthcare industry who are looking to fund growth to help their companies succeed in the current economic environment.

ECI is a private equity group that has been investing in mid-market growth businesses for over 35 years. It invests across sectors, with a focus on UK and Irish companies. Healthcare companies in its current portfolio include a primary care provider (Harmoni), assisted living specialists (Premier Bathrooms, DLP) and medical software companies (Clinisys, Ascribe).

The FDA has approved Abbott Molecular’s genetic diagnostic, Vysis EGR1 FISH Probe Kit, to detect acute myeloid leukaemia (AML).

The new in vitro test is the third of Abbott’s FISH assays to be cleared for oncology applications in the US in the past two months.

Stafford O'Kelly, Head of Abbott's Molecular Diagnostics Business said that the medical technology “can identify which AML patients have the chromosomal abnormality upon diagnosis and provides physicians with another clinically validated tool to assess a patient's overall prognosis”.

The Kit’s technology detects chromosomal deletion in the bone marrow, and can be used in addition to cytogenetics, other biomarkers, morphology and other clinical information, at the time of AML diagnosis to determine prognosis.

Each year, more than 12,000 people are diagnosed with AML, which is a rapidly progressive disease. Current standard procedure involves aggressive chemotherapy drugs, while some patients may require a stem-cell transplant to replace unhealthy bone marrow with leukaemia-free stem cells.  

Part of Abbott, Abbott Molecular is a leader in molecular diagnostics, analysing DNA and RNA at the molecular level. Abbott Molecular's tests aim for earlier detection or diagnosis, to provide information of appropriate treatment, and improve monitoring of disease progression.

Abbott is a global healthcare company, which discovers, develops, manufactures and markets pharmaceuticals and medical products, including nutritionals, devices and diagnostics. The company employs nearly 90,000 people and commercialises its products in more than 130 countries worldwide.

Royal Philips Electronics is developing a new range of healing environments at a new dedicated research facility at its Research Laboratories in Eindhoven, the Netherlands.

Adding to Philips’ portfolio of solutions for hospital care, the healing environments use technology to reduce patient stress, accelerate recovery and improve treatment outcomes.

The new project reflects the emergence of a generation of patients who are well-informed about their condition and exercise their power of choice in finding the hospital that best meets their needs.

One of the concepts under development is a PE-CT uptake room (pictured) that uses calming lighting, video images and sounds to reduce the stress levels of patients awaiting an oncology scan.

Other well-advanced projects include environments focused on preventing delirium in intensive care units.

The new healing environment solutions will be trialled in the facility’s Hospital Area, which simulates the conditions of real hospitals.

“There is an increasing body of evidence to suggest that patient-friendly comforting environments not only reduce anxiety levels but also promote the healing process itself,” said Henk van Houten, General Manager of Philips Research.

“The opening of the Hospital Area is a clear expression of our commitment to this important new area of healthcare research, which leverages Philips’ unique expertise in healthcare, lighting and consumer lifestyle.”

Philips’s existing products in the healing environments field include the Ambient Experience solution for medical imaging and A&E departments, which uses lighting, sound and images to reduce the stress levels of children undergoing a scan.

Royal Philips Electronics of the Netherlands is a diversified healthcare company specialising in cardiac care, acute care and home healthcare.