BREAKINGVIEWS-KKR’s UK healthcare loss is a nuanced home win

By Yawen Chen

LONDON, Aug 13 (Reuters Breakingviews) - London’s beaten-down stock market can occasionally resist foreign predators. Just ask KKR KKR.N, whose 1.7-billion-pound ($2.3 billion) cash bid for British healthcare landlord Assura AGRP.L has lost out to domestic peer Primary Health Properties’ PHP.L largely share-based one. For chastened fans of UK plc, seeing off the U.S. buyout giant constitutes a win – but a pretty nuanced one.

On the face of it KKR’s inability to snare Assura, which runs medical centres, is rather odd. After various rounds of bidding, PHP’s cash-and-shares offer worked out at $2.4 billion, slightly ahead of KKR’s. But after a share price dip it was marginally lower – and shareholders still went with it.

That choice bucks a broader real estate trend. Many mid-sized UK-listed property firms trade well below the value of their assets, making them tempting for cash-rich private investors like KKR and Blackstone BX.N. These bidders often dangle all-cash premiums to the current share price – but still at a discount to their net asset value – giving capital-starved boards an easy exit.

That said, falling rates mean it’s legitimate for Assura shareholders to want to share in the upside of a UK property recovery via a share-heavy in-market merger. While 9 million pounds a year in cost synergies isn’t exactly material, major investors like Schroders liked the fact that a PHP tie-up would create scale. Combined the pair will have around 1,100 medical centres, or about 15% of the UK market, a person familiar with the situation told Breakingviews. A template for resisting overseas interest is retailer Currys CURY.L, which saw off suitors in 2024 and has seen its share price surge.

Given recent years have seen UK-listed groups like Darktrace, Hargreaves Lansdown and Keywords Studios swallowed up by private equity, London market cheerleaders will rejoice. But aside from national considerations, KKR’s mistake may have been to assume that an all-cash bid would trump a 40% premium that was too similar to that offered by the competition. Contrast Assura with the buyout group’s punt for UK industrial group Spectris SXS.L, which forced the board to abandon a rival deal with Advent International – that offered a near-100% premium.

Granted, a higher KKR bid for Assura might have been constrained by the fact that infrastructure-like assets like medical centres typically deliver mid- to low-single-digit annual returns, below the double-digit internal rates of return private equity usually targets. Still, rather than heralding a decisive end to the hollowing-out of UK equity markets, the lesson seems to be that foreign capital can still snare targets – for a price.

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CONTEXT NEWS

Primary Health Properties (PHP) said on August 12 it had secured acceptances for 62.9% of Assura shares, winning the takeover battle for the British healthcare real estate investor against U.S. private equity firm KKR.

PHP confirmed that all remaining conditions tied to its revised $2 billion cash-and-stock offer for Assura have now been satisfied, implying that PHP can now proceed with the acquisition.