Learn an Invaluable Listed Partnership Lesson with Circle Holdings’ Example


Date : Jul 28, 2017 Author : Anurag Sharma Category : Business

Rising overseas patient visits fueling the U.K. private healthcare market

The well-known American personality Groucho Marx had once said that he would not want to be part of a club that had him as a member. This seemingly contradictory statement should ring alarm bells in the stock market. Managing a partnership or club is almost impossible when member’s interests do not coincide. If Circle Holdings investors had paid heed to this when the company floated on the junior market in London some years ago, they would have been much better off. It would have helped reduce the hype that surrounded what was then termed the UK’s first listed partnership.

Analysts claimed that Circle would make doctors responsible for the hospital, the company would be the best in the U.K. Private Healthcare Market, and staff ranging from clinicians to cleaners would be able to own almost half of the business.

A few months after this, Circle Holdings was selected to run the Hinchingbrooke Hospital located in Cambridgeshire, making it seem well-prepared to tackle future challenges. Circle Holdings was celebrated as the first company that took on the management of an NHS trust. Circle promised to improve the patient experience over the next decade while simultaneously improving hospital efficiency. Circle Holdings was able to eke out savings of £310m, reduce the hospital deficit of £38m, and earn fees of £30m. The company share prices even peaked at a high of £2. Government ministers praised its structure as a ‘third option’ that was a between the private sector and state healthcare. Even its competitors in the U.K. Private Healthcare Market took note and spoke of a new dawn of public-private partnerships.

Alas, this dream ended in 2015 when Circle Holdings returned the keys to Hinchingbrooke. It did so because of escalating patient numbers and a reduction in funding. This even led the Care Quality Commission to criticize Hinchingbrooke hospital. Even though Circle challenged the findings of the commission, the experiment was an abject failure. The shares have been punished by these uncertainties and have yet to recover.

The share price plummeted by nearly 67% in just one year. Being part of a listed partnership has not been enough to protect either shareholder or business interests. Staff ownership of the company has been cut down to just 25% after a large-scale restructuring in 2014 and this comprised paying off loans of almost £300m to spur growth.

Experts believe that Circle’s trouble has more to do with being a start-up in an industry rife with politics where so much is outside company control. It is hoped that the company can reap the benefit of economies of scale once it gets bigger. There should then be an alignment of interest between shareholders and staff members and the advantages of putting clinicians in charge will start to be truly pay off. There are still a few naysayers who think that making clinicians accountable and including them in the cost of care decisions won’t directly impact a company’s bottom line.  It is quite challenging to maximize profits without any compromise in patient care – some would even call it impossible.

Even staff ownership does not guarantee the alignment of all investor interests. It has not been successful in the fund management and banking sectors where analysts had hoped that ownership in the company would make executives stop the practice of excessive bonus payments. However, it is human nature to look at something one has more control over (payslip in this case) rather than that one cannot control much (share price).

The biggest challenge for Circle Holdings though is the U.K. government. A partnership between the government and small businesses is hardly one of two equals. Even much larger companies than Circle Holdings have often been on the losing end of such negotiations, boding ill for the company.


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