Could bankers partner with governments?

Two pieces of news grabbed my attention last week:

1. MDS sold its Canadian lab business to Borealis Infrastructure; and
2. A report from Buyouts magazine (subscription required) about a very, very healthy fundraising year for U.S.-based buyout and mezzanine funds. It is almost a foregone conclusion that the final 2006 tally for fundraising will surpass the $183 billion raised last year, which was a record in its own right.

While I do not know enough about the MDS Diagnostic Services business to discuss the transaction in detail, it is fair to assume that the stable cash flow from a business where the government is a key customer will earn Borealis its customary 10-15% IRR on the $1,325,000,000 invested. Similarly, fund managers from the newly-raised buyout and mezzanine funds will be on a global hunt for operating businesses that promise their target return.

Imagine a world ruled by bankers in search of yield is a fertile ground for artists. (See John Sayles’ film “Sunshine State” as an example.)

Observing the foray of pension fund money, like Borealis, into a publicly funded activity, like health care, made me think of a potential partnership that could address significant societal issues like environment and health care. A commercial partnership between the regulators and the regulated seems a bit dubious at first glance. However, bringing together the operational efficiencies of a private enterprise and scope of a government may merit a thought. This could be most powerful for health care delivery. After all, this industry suffers from the insanely high costs of large-scale clinical development, a huge hurdle for innovative companies. As a result, new approaches, like truly powerful diagnostic methods, do not reach patients for decades.

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Tags: advisors, finance, government, health care, public sector, Veronika Litinski