Brookfield may spin off Healthscope’s assets in NZ

Brookfield took control of Healthscope in a $4.4bn deal earlier this year. Picture: Bloomberg

Fresh from striking a deal to buy Healthscope for $4.4bn, private equity firm Brookfield is believed to be weighing a break-up of the country’s second largest private hospital operator, with some suggesting that a sale of its New Zealand pathology operations is on the cards.

The Canadian-based buyout firm declined to comment, and it is understood there is no sales process for the division, but some in the market say Brookfield is planning to offload the operations across the Tasman.

Healthscope promotes itself as having one of the country’s leading pathology services, including hospital and community diagnostic and screening services and veterinary diagnostic and screening services and food testing.

Estimates suggest that the business is worth about $200m.

In Australia, Healthscope runs 43 private hospitals around the country. The company is run by Steven Rubic and expectations have been mounting about cost cuts under private equity ownership.

Brookfield took control of Healthscope this year after a takeover battle began in 2018 where it went up against its private equity rival BGH Capital.

Before the company was privatised, it generated $89.4m in net profit for the 2018 financial year.

Likely buyers of the New Zealand assets are said to be the Australian listed healthcare providers Sonic and Healius which both operate in the space.

A move to divest the NZ pathology operations of Healthscope would come only about a year after it sold its pathology business in Asia.

At that time, Healius and Sonic were both said to be looking but they ended up selling to TPG Asia for $279m in a process run by investment bank UBS. Sonic has a large presence in the pathology space internationally.

While pathology has been a good growth business for Healthscope, it is not necessarily in the core market where the company wants to operate.

This was thought to be behind the decision to sell its Asian assets.

Brookfield has purchased the country’s second largest hospital operator at a time that the declining affordability of private health insurance has slowed sign-up rates over the period.

However, the reputation private hospitals have for providing greater amenities can also increase their attractiveness for more frequent users, particularly those aged over 65.

As a consequence, private health insurance membership for individuals aged 65 and over has grown strongly in recent years and is forecast to rise 3.0 per cent in the current year.

Meanwhile, it has been a highly active year for Brookfield when it comes to deals.

It reached an agreement to acquire Vodafone New Zealand with Infratil for $3.2bn and aged care provider Aveo for $1.3bn.

It also sold half its share in Genesee and Wyoming Australia to its joint venture partner Macquarie Infrastructure and Real Assets for $1bn.