London’s CapVest lobs $650m bid for IVF provider Virtus, trumping Ben Gray’s BGH Capital

The competition for Australia’s biggest IVF provider, Virtus, is heating up after London-based private equity firm CapVest entered the fray.

Virtus has attracted two suitors: London-based CapVest and local private equity firm BGH Capital. Picture: Virtus Health

London-based private equity firm, CapVest, has lobbed a $650m buyout bid for Australia’s biggest IVF provider, Virtus, trumping an offer from Ben Gray’s local outfit, BGH Capital, and setting the stage for a bidding war.

On the day Victoria lifted its ban on IVF procedures, Virtus granted exclusive due diligence to CapVest – which has more than €5bn ($7.85bn) in assets under management – after it made a cash offer of $7.60 a share. This compares with BGH’s pre-Christmas bid of $7.10 a share, or $607m.

The news sent Virtus shares surging 7.9 per cent to $7.22 in afternoon trade on Thursday.

“Following careful consideration of both the CapVest proposal and BGH proposal, including

advice from its financial and legal advisers, the Virtus Board has determined that the CapVest proposal is attractive for shareholders in the context of a change of control transaction and superior to the BGH proposal,” Virtus said in a statement.

“After considering all the circumstances, including an assessment of fundamental value of

Virtus on a stand alone basis and the interests of Virtus and its shareholders, the Virtus board has agreed to provide CapVest with the opportunity for a period to conduct exclusive due diligence to facilitate development of a binding offer for Virtus.”

BGH has been keen to invest in health, vying for Australia’s second biggest private hospital operator Healthscope in 2019. But it lost to Canadian investment manager, Brookfield, which bought Healthscope for $4.4bn in June that year.

When it made its offer for Virtus last month, BGH announced it had already acquired 10 per cent of the company at $7.10 a share and had entered into a total return swap with UBS to acquire another 10 per cent. BGH also flagged that it would offer a cash and scrip alternative to major fertility specialist shareholders and certain other affiliated shareholders to enable them to continue their investment in Virtus, which runs IVF Australia, Melbourne IVF and Queensland Fertility Group.

Virtus’s board has granted CapVest a 40-day exclusivity period. It has also agreed to pay a fee of $2m on to CapVest if it provides a fully documented, financed and binding offer. That fee increases to $4m if the Virtus Board recommends a superior competing proposal within an agreed timeframe, Virtus said in a statement.

CapVest, founded 22 years ago, has proposed to acquire 100 per cent of the company but has also said it is willing to pursue an alternative arrangement that would need 50.1 per cent acceptance of Virtus shareholders.

It has several healthcare investments, including leading pharmaceutical contract development and manufacturing company, Next Pharma, and nuclear medicine firm Curium.

CapVest has a minimum investment horizon of four to five years but has held some investments for more than 10 years, such as Valeo Foods. It is understood that the firm is prepared to commit significant new investment to help scale businesses in areas including research and development, launching new products and services and further international expansion.

It is understood that BGH is also looking to bulk up Virtus via acquisitions, most likely in Singapore and Ireland, where it already operates clinics. Bulking up Virtus in Australia remains challenging, as evidenced by the recent opposition it faced from the Australian Competition and Consumer Commission when buying smaller IVF provider Adora from Healius for $45m this year.

Virtus also has a diagnostic imaging business and day centres, so opportunities exist for acquisitions in that sector as well.

CapVest’s offer comes a week after it warned the Omicron outbreak was hitting its global operations, which span the UK, Ireland, Denmark and Singapore. It also warned of disruption from elective surgery bans, mainly in Victoria. But on Thursday the Victorian government said some IVF services would resume today, with clinics scaling up a full return to services on January 25.

Virtus will update investors on its financial position at its half-year results on February 15.