Ramsay’s $3.7bn takeover bid for Spire ‘no knockout’ but appears reasonable: analysts

Ramsay Healthcare’s $3.7bn bid to take over British rival Spire Healthcare has been given a lukewarm approval by analysts.

The acquisition of Spire will nearly double the size of Ramsay’s UK portfolio to 75 hospitals.

Ramsay Healthcare’s $3.7bn bid to take over British rival Spire Healthcare to become the UK’s No.1 hospital provider is “no knock out” but appears reasonable, analysts say.

Ramsay has lobbed an all cash bid of £2.40 ($4.38) a share to acquire Spire, the share price of which soared as high as 29 per cent to £2.49 pence in the wake of Ramsay’s offer.

But Royal Bank of Canada analyst Charles Weston believed Spire’s share price would have risen regardless of Ramsay’s proposal, labelling it “no knock out”.

“We believe that it may not have taken much for Spire’s share price to reach this price without a bid given the pent-up demand in the market,” Mr Weston said in a note to investors.

Still, he rated Spire, which floated on the London Stock Exchange at £2.10 pence a share in 2014, as “speculative risk”.

“The reason we have speculative risk in our rating is the high operational and financial leverage in the business, which has led to disappointing earning progression since IPO, so any share appreciation is unlikely to be smooth, in our view.”

Spire’s shares eased to 239.66 pence on Wednesday trade (London time). Meanwhile, Ramsay chief executive Craig McNally would not be drawn in to speculation that the company may have to sweeten its offer. “I can’t make any comment on that,” he said.

And Mr Weston said he did not foresee Ramsay battling any competition from existing UK hospital operators to take on Spire.

“We do not see any other UK players bidding for Spire given CMA (Competition and Markets Authority) complexities and/or their business models,” he said.

“Mediclinic had been speculated as a potential bidder, but it has undertaken to sell its shares to Ramsay. HCA Corp was also mooted as a potential buyer, as Spire’s ex-London hospitals would fit well with HCA’s very strong position in London, and would potentially provide meaningful synergies.

“Other than this, private equity has been a key owner of healthcare services assets.”

Ramsay chief executive Craig McNally.

Citi analyst John Deakin-Bell said Ramsay’s offer to take over Spire appeared reasonable.

“In terms of valuation, the company is paying 10.9x Spire’s … EBITDA CY19 (pre-synergies, pre Covid) of £189m which on face value appears reasonable,” Mr Deakin-Bell wrote in a note to investors.

“However, at the EBIT level this is an EV/EBIT multiple of 21x (pre-synergies) or 16.7x (post synergies), which is more reflective of the cash flow post rent – this multiple looks less attractive although growth post Covid could result in significantly higher earnings.”

Already, Ramsay has secured “irrevocable undertakings” from shareholders controlling 30.4 per cent of Spire to vote in favour of its scheme. On completion, it will nearly double the size of Ramsay’s UK portfolio to 75 hospitals.

Mindful of pre-empting the decision of other shareholders, Mr McNally said the unanimous support from Spire’s board gave the group some confidence.

“We just can‘t talk to the others, I mean we’ve got to get 75 per cent of the shareholders (voting in favour at a) meeting which will be in July. The Spire board’s unanimous support for it added confidence. So, that’s all we can say really.”

Ramsay’s shares were trading 2.7 per cent lower at $62.82 in afternoon trade on Thursday, compared with a 0.2 per cent gain across the broader share market.

The deal will be completely debt funded. On completion, Ramsay, which currently owns more than 500 hospitals and clinics, will launch a strategic review of its assets.

Mr McNally said it was too early to say if this meant selling hospitals.

“I don’t want to jump to whatever the conclusion will be. We‘ve got quite a number of options around that. And we’ll take our time to carefully consider what the best option, or best options.

“We’ve got to get through the completion of the transaction first. So we don’t want to get ahead of ourselves.”