Ramsay Health Care strengthens market share in Britain’s $27.75bn mental health sector with Elysium Healthcare deal

Ramsay Health Care chief executive Craig McNally says demand is outpacing supply for mental health services in Britain.

Australia’s biggest private hospitals business Ramsay Health Care is expanding its international operations with its acquisition of UK-based Elysium Health for $1.4bn. Picture: iStock

Ramsay Health Care chief executive Craig McNally says demand is outpacing supply for mental health services in Britain and is providing the hospitals operator with an opportunity to grow its business there through organic growth and bolt-on acquisitions.

Mr McNally, the boss of Australia’s largest private hospitals operator who on Monday unveiled a $1.4bn purchase of British mental healthcare operator Elysium Healthcare, also said he expected surgeries and other visits to his local portfolio of hospitals to accelerate into the new year as ­patients and doctors returned from summer holidays.

The protracted lockdowns, border closures and other pandemic measures had delayed or derailed operations and hospital rates in the last quarter, which saw Ramsay recently warn it had cost it as much as $55m in the first quarter. But that hasn’t stopped the business looking for new growth opportunities.

Ramsay has revealed the latest stage of its offshore expansion that will give it a greater slice of the British mental health sector estimated to be worth as much as £15bn ($27.75bn), when the pandemic and other issues are pushing up the demand for mental health services.

Ramsay announced on Monday the deal to acquire UK-based Elysium from private equity firm BC Partners, with the auction of the Elysium business cut short when Ramsay flew in over the top with an offer that its private equity owners were happy to agree to.

Elysium is a leading independent operator of long-term medium and low secure hospitals and complex care homes for individuals with mental health conditions. It has a strong partnership with the NHS.

The business was originally formed with 22 hospitals and has grown organically and through acquisitions to 72 operational sites and about 2000 beds. Elysium is now a leading provider of independent mental health services in the UK. The business employs about 6000 people.

Mr McNally said demand for mental health services in Britain was outstripping supply, with the economics of the sector in the country bolstering its attractiveness to Ramsay.

“While demand is exceeding supply it is also about who is paying for it … and what you continue to see, and this is not necessarily a result of Covid, is increased awareness of mental health conditions and access to services,” he said.

“There is room to expand and that is part of the strategy both in terms of the development of the existing capacity through a brownfield program but also some bolt-on acquisitions.”

There was also an opportunity for cross-collaboration across mental health and acute care propositions and innovation between Ramsay’s businesses in Australia, France, Sweden and the UK. The deal is expected to deliver synergies of at least £5m a year. Ramsay is also the biggest private mental health operator in Australia, Sweden and France.

The Elysium business offered a platform for growth through full utilisation of recently developed capacity, and delivering on its development pipeline, combined with potential bolt-on opportunities, Ramsay said in an ASX statement.

The acquisition values the business on an enterprise value/pre-tax earnings of 13.5 times, and is expected to deliver mid-single-digit earnings per share accretion in 2023. It meets Ramsay’s internal return targets, including a post-tax cash return on invested capital target of greater than 10 per cent by year five and a post-tax internal rate of return of greater than 10 per cent.

Ramsay said the purchase of Elysium represented a unique opportunity to enter the growing UK mental health hospital market at scale.