The Carillion effect
How does the Carillion collapse relate to NHS dentistry? Alun Rees explains.
Carillion has gone.
Another rude awakening from the easy delusions that ‘bigger is better’ and some companies are ‘too big to fail’.
For months the writing was on the wall for Carillion, yet it was still being granted taxpayer funded contracts on the misguided presumption that it would trade itself out of failure.
From Maxwell to Jaeger and Polly Peck to MG Rover, we sit on the sidelines and say: ‘Didn’t anyone see it coming?’
Recovering the losses
With Carillion you have to wonder what its auditors have been doing to justify their fees for the past couple of years.
Doubtless the banks will try to recover their losses and atone for their mistakes.
First in line will be the smaller companies and suppliers who depended upon Carillion.
Overnight, lines of credit will be removed as many individuals and their families suffer and watch their businesses go under as a consequence.
In recent years the apparent value of NHS dental practices has risen alarmingly, especially if you’re a buyer, on the strength of Government contracts – you can probably see where this is going.
The banks seem happy to lend against these contracts, as they were with Carillion.
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The new ‘business like’ valuation using ‘EBITDA’ (earnings before interest, tax, depreciation and amortisation) makes things more opaque and confusing to an individual purchaser.
Originally popular for leveraged buyouts of distressed companies – is it appropriate for dental practices?
NHS practices have become groups that have become chains and mini corporates.
The aim it seems is to get bigger contracts with the hope of selling on to even larger corporates.
So far, so good, that’s capitalism for you.
But as economist Larry Elliott wrote about Carillion: ‘The fatal flaw is believing that you can deliver world-class public service on the cheap’.
Where does that leave health care?