Healthscope Takeover Target, page-37

Private equity returns for Healthscope with $6b bid

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A consortium spearheaded by private equity firm BGH Capital is believed to be preparing a $6 billion bid for Australia's second biggest private hospital operator, Healthscope.

Street Talk understands BGH has teamed up with Healthscope's biggest shareholder AustralianSuper, and other financial investors, in a bid to take the hospitals group private and run it away from the ASX-boards.

The consortium is believed to already have about a 15 per cent stake in Healthscope, worth more than $500 million. The bulk of those shares belong to AustralianSuper.

Healthscope is expected to announce that it has received an approach as early as Thursday morning.


The company has had its bankers at UBS at close hand in recent days. UBS bankers Kelvin Barry and Tom Lingard presented a refreshed defence strategy to the board on Tuesday.
Its shares have performed strongly in the past fortnight, on little company-specific news, as speculation of a takeover mounted and short-sellers trimmed positions.

A bid at a 25 per cent premium to where Healthscope was trading prior to the speculation would value the company at about $6 billion, including debt. Healthscope had $1.7 billion net debt at December 31.
The private equity interest is expected to be welcomed by Healthscope shareholders.

The company has been under considerable pressure in the past 18-months, with two profit downgrades since October 2016.


Its hospitals division, which accounts for more than 80 per cent of group earnings, has underperformed arch rival Ramsay Health Care and there is significant pressure on Healthscope to meet earnings guidance for the second half.

The private hospital industry also faces headwinds, with the number of people using private health insurance decreasing. Less private health insurance coverage should mean fewer leads for private hospital operators.

It is one reason why Healthscope stock was down 17 per cent since new chief executive Gordon Ballantyne took the reins 12-months ago to $1.89 each, prior to recent bid speculation.

Healthscope re-listed on the ASX at $2.10 a share in July 2014. Its shares closed at $2.03 on Tuesday.


The company owns 47 hospitals across Australia, including the new Northern Beaches hospital in Sydney and Frankston Private Hospital in Victoria, and is expected to report $2.44 billion revenue and $408 million earnings in the year to June 30.

BGH and its co-investors, advised by Macquarie Capital, are likely to require due diligence before firming up their proposal, as is common in leveraged buyouts.

The question for Healthscope shareholders is whether their board, led by Tabcorp chairman Paula Dwyer, grants due diligence at the offer price. They will know that the BGH consortium's pre-bid stake may make it hard to attract a rival suitor to topple the proposal already on the table.

Any deal would be a return to private equity for Healthscope. It would also be a return to the hospitals company for BGH dealmakers Ben Gray and Simon Harle, who managed a half-share of the business while it was in the hands of global private equity giants TPG and The Carlyle Group earlier this decade.


Interestingly, BGH's senior team also includes former Macquarie Capital investment banker Robin Bishop and former Credit Suisse banker Stephanie Charles. Macquarie and Credit Suisse worked on Healthscope's takeover in 2010 and its re-listing in 2014.

It would be also be BGH's first deal. The firm recently ruled off a $2.3 billion first close for its maiden fund.

AustralianSuper is Healthscope's largest shareholder with a 13.9 per cent stake. Other major investors include Ellerston Capital (9.4 per cent) and funds owned by Sumitomo Mitsui, including Nikko Asset Management, with 5.4 per cent.

Its shares have performed strongly in the past fortnight, on little company-specific news, as speculation of a takeover mounted and short-sellers trimmed positions.

A bid at a 25 per cent premium to where Healthscope was trading prior to the speculation would value the company at about $6 billion, including debt. Healthscope had $1.7 billion net debt at December 31.

The private equity interest is expected to be welcomed by Healthscope shareholders.

The company has been under considerable pressure in the past 18-months, with two profit downgrades since October 2016.


Its hospitals division, which accounts for more than 80 per cent of group earnings, has underperformed arch rival Ramsay Health Care and there is significant pressure on Healthscope to meet earnings guidance for the second half.

The private hospital industry also faces headwinds, with the number of people using private health insurance decreasing. Less private health insurance coverage should mean fewer leads for private hospital operators.

It is one reason why Healthscope stock was down 17 per cent since new chief executive Gordon Ballantyne took the reins 12-months ago to $1.89 each, prior to recent bid speculation.

Healthscope re-listed on the ASX at $2.10 a share in July 2014. Its shares closed at $2.03 on Tuesday.


The company owns 47 hospitals across Australia, including the new Northern Beaches hospital in Sydney and Frankston Private Hospital in Victoria, and is expected to report $2.44 billion revenue and $408 million earnings in the year to June 30.

BGH and its co-investors, advised by Macquarie Capital, are likely to require due diligence before firming up their proposal, as is common in leveraged buyouts.

The question for Healthscope shareholders is whether their board, led by Tabcorp chairman Paula Dwyer, grants due diligence at the offer price. They will know that the BGH consortium's pre-bid stake may make it hard to attract a rival suitor to topple the proposal already on the table.

Any deal would be a return to private equity for Healthscope. It would also be a return to the hospitals company for BGH dealmakers Ben Gray and Simon Harle, who managed a half-share of the business while it was in the hands of global private equity giants TPG and The Carlyle Group earlier this decade.


Interestingly, BGH's senior team also includes former Macquarie Capital investment banker Robin Bishop and former Credit Suisse banker Stephanie Charles. Macquarie and Credit Suisse worked on Healthscope's takeover in 2010 and its re-listing in 2014.

It would be also be BGH's first deal. The firm recently ruled off a $2.3 billion first close for its maiden fund.

AustralianSuper is Healthscope's largest shareholder with a 13.9 per cent stake. Other major investors include Ellerston Capital (9.4 per cent) and funds owned by Sumitomo Mitsui, including Nikko Asset Management, with 5.4 per cent.


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