Challenging the investment case for a market-leading healthcare advisory business
Snapshot
At a glance
A strategic buyer considering the acquisition of a specialist healthcare advisory business needed an independent assessment of the target’s growth prospects and the rate of return on investment. Newmarket Strategy built a bottom-up view of the market, tested the target’s revenue assumptions and competitive position, and concluded that achievable revenues were materially below those assumed in the investment case and would not support the returns being targeted.
Client
A strategic buyer assessing the acquisition of a provider of specialist healthcare advisory services
Challenge
The target operated in a niche, fast-growing market with limited commercial data. The investor needed to determine whether ambitious assumptions around market growth, demand growth assumptions, and gains in market share were achievable, and whether the resulting revenue trajectory could support the returns modelled for the transaction.
Support
Newmarket Strategy built a revenue model from the bottom up using NHS activity data, target volumes, service-line pricing, and competitor benchmarks. We forecast demand and market value, modelled the target’s achievable market share and revenues, assessed the competitive landscape and barriers to entry, and stress-tested the commercial case against policy, funding, and regulatory scenarios.
Outcome
Our analysis materially challenged the investment case. Although we found a supportive underlying market, our revenue forecast was materially below the assumptions underpinning the transaction. On that basis, the client concluded that the investment was unlikely to deliver its required returns and chose not to proceed.
The challenge
Testing the target’s growth assumptions
The target had grown rapidly and operated in a market benefiting from increasing demand and growing awareness of private advisory services. However, rapid historic growth did not necessarily validate the assumption that that growth rate was sustainable. The client needed to understand the realistic size of the addressable market, what share the target could credibly capture and, ultimately, whether the resulting revenues justified the proposed investment.
Our approach
Rebuilding the commercial case from first principles
Newmarket Strategy developed a commercial model from the underlying drivers of demand. We estimated addressable volumes by service line, assessed willingness and ability to pay, benchmarked pricing and competitors, and modelled realistic growth in the target's market share. We then translated those assumptions into a revenue model and compared it with the growth required to support the investment case.
- Built a bottom-up estimate of the market using NHS activity data, pricing, and implied provider volumes.
- Segmented demand across the target’s core service lines and forecast growth separately for each.
- Tested the realistic ceiling for market penetration, including customer awareness, willingness and ability to pay.
- Assessed the target’s current and achievable future market share within a fragmented competitive landscape.
- Benchmarked competitors, pricing models, and barriers to scale.
- Interviewed NHS, ICB, and local authority stakeholders to test the durability of underlying demand.
- Stress-tested revenue assumptions against policy, funding, regulatory, and operational risks.
The outcome
Revealing pitfalls in the revenue forecast
Although demand for private healthcare advisory services was expected to grow and the target had a strong competitive position, our work identified practical limits to market penetration and the pace at which further share could be captured. Our resulting revenue forecast was materially below that assumed in the investment case and did not support the returns the strategic buyer had modelled. The client therefore chose not to proceed with the transaction, having concluded that the investment was unlikely to deliver the returns they were seeking.
