UPDATE 1-RBS seeks mid-Sept bids for the Priory -sources

Tue Aug 24, 2010 1:35pm EDT

* String of private equity firms said to prepare bids

* Priory owners hoping for 10 or more times EBITDA

* Sale follows scrapped IPO earlier this year

(Adds other possible bidders, background, valuation)

By Quentin Webb and Simon Meads

LONDON, Aug 24 (Reuters) - Royal Bank of Scotland (RBS.L) has begun the sale of mental-health specialist the Priory Group, which it hopes could fetch about 1 billion pounds ($1.54 billion), people familiar with the matter said on Tuesday.

RBS, which is being advised by Rothschild [ROT.UL], has given bidders until mid-September to submit indicative offers, the people said. RBS abandoned plans to list Priory earlier this year.

The Priory operates more than 50 hospitals, schools and care homes in Britain. It is being sold as RBS sheds non-core assets to slim its unwieldy balance sheet.

The group is best known for treating addictions, eating disorders and depression, with celebrities and rock stars regularly reported among clients at its flagship clinic in Roehampton, in leafy southwest London.

A slew of private equity firms, including Advent International, Bain Capital, Blackstone Group LP (BX.N), The Carlyle Group [CYL.UL], Cinven [CINV.UL] and KKR [KKR.UL] are preparing bids, the people said.

Other private equity suitors could include Apax Partners [APAX.UL], which is already heavily invested in British healthcare, Charterhouse [CHCAP.UL], and CVC [CVC.UL], some of the people added.

A sale at about 1 billion pounds would represent a little more than 10 times this year's earnings before interest, tax, depreciation and amortisation (EBITDA).

A buyer would probably have to inject about half that amount.

Priory expects to make about 95 million pounds EBITDA in the year to December, one of the people said, with banks willing to lend about 5.5 times that for a deal, implying a bidder would have to find 500 million pounds.

RBS declined to comment. A Priory spokeswoman declined to comment on the sale, saying the group was "focused on the day-to-day running of the business". The private equity firms either declined to comment or were not immediately available to comment. ($1=.6494 Pound) (Editing by Douwe Miedema and Will Waterman)