AVCJ Awards 2020: Operational Value Add: Nexus Day Hospitals

Healthcare is a recognized sweet spot for Mercury Capital and the Australia-based GP re-emphasized this notion by securing a 3.5x multiple and a 44.3% IRR on Nexus Day Hospitals. Like many Mercury deals, the value creation story was driven by a buy-and-build philosophy.

Following a deep dive into the day hospitals space, Mercury liked what it saw and identified Nexus Day Hospitals and National Day Surgeries as targets. They owned three hospitals apiece.

It bought Nexus Day Hospitals in 2016, taking out existing investor Wolseley Private Equity in the process, and provided funding for the company to acquire National Day Surgeries. The enterprise valuation of the entire deal was approximately A$100 million ($77 million).

Andrew Petering, previously a managing director at Wolseley, was named CEO of the combined entity. “It was an opportunity where I thought I’d step in and take that role for six months or so while we recruited the real person for that job. I had so much fun and became so engaged in the business that I ultimately chose to step away from what I was doing in private equity and throw everything into building out the Nexus platform,” he told CEO Magazine.

Within 12 months new CFO and COO appointments were made. Steps were also taken to standardize financial and patient administration systems across the hospital network and introduce software for risk management, staffing, inventory tracking, and business development.

The footprint comprised nine hospitals: the original six plus three on which Nexus Day Hospitals had previously secured options. Over the next three years, the network grew to 15 hospitals, 50 theaters and more than 450 surgeons. The company’s range of clinical specialties also expanded.

“Ultimately, it became the leading day hospital operator in Australia,” says Ben Hawter, a partner a Mercury. “We are pleased to have worked closely with the Nexus team on this journey as they did the heavy lifting to build out a very strong operating foundation from which we could continue to expand the business.”

In addition to putting in place the right infrastructure, Mercury had to establish a collaborative relationship with the doctors. There were doctor shareholders in each of the preexisting businesses and more than 60 were invited to invest in the new company alongside Mercury. They were given a unique class of equity that was directly linked to the performance of the hospital in which they worked.

The GP also helped Nexus improve engagement with health insurers that funded more than 90% of the company’s revenue. They sought to reframe these relationships as strategic partnerships, which led to the introduction of innovative funding models intended to steer more procedures into day hospitals.

EBITDA more than doubled during Mercury’s four-year holding period, which ended when QIC bought its majority stake in November 2019.

Pictured: Ben Hawter of Mercury Capital makes his video acceptance speech

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• Topics
• Australasia
• Buyouts
• Trade sale
• Healthcare
• Australia
• Mercury Capital
• AVCJ Awards