Healthscope sell off on the cards as Calvary Health Care taps Jefferies

Knox Private Hospital in Wantirna will be closing its maternity ward in 2019.

Investment bank Jefferies has been tapped by Calvary Health Care to bid for Healthscope’s hospitals, as it joins a list of at least nine other groups circling the collapsed healthcare provider.

DataRoom can reveal that Macquarie Group is among the suitors for the hospitals, vying for two assets, while the majority of other serious candidates to buy the facilities are not-for-profit operators.

Only one private equity firm features among the serious contenders, and none are offering an all-of-company solution.

But the advantage of not-for-profit operators is that they are not obligated to pay payroll tax.

As Healthscope entered receivership on Monday with McGrathNicol’s Keith Crawford at the helm, attention turns to the company’s future, which will likely involve a quite different owner to that of Brookfield.

Brookfield purchased Healthscope in 2019 for $4.4bn and the private equity firm moved to distance itself from its woes earlier this month by handing the keys of the country’s second-largest private hospital operator to its lenders after it could not meet its $1.4bn debt obligations or rent payments.

Other Healthscope suitors include Healthe Care, owned by private equity firm Pacific Equity Partners, while Catholic healthcare operators Calvary, St John of God and St Vincent’s, have all expressed interest.

Cabrini Health, also affiliated with the Catholic Church, is interested in Holmesglen Private Hospital.

Healthscope’s larger rival, Ramsay Health Care, is exploring the purchase of a select group of hospitals, but may face challenges gaining ownership approval from the Australian Competition & Consumer Commission.

Epworth, which is backed by the Uniting Church, has also been an interested buyer in some assets.

As earlier reported by this column, there’s speculation that a scenario may play out similar to ABC Learning, where the collapsed childcare business was taken over by a consortium of not-for-profit groups and rebranded Goodstart Early Learning.

Negotiations will need to happen between landlords and any new acquirers.

Landlords have previously relied on rents that can be as high as 40 per cent of a company’s earnings before interest, tax, depreciation and amortisation.

Healthscope’s two major landlords are Northwest Healthcare Properties REIT and HMC Capital’s listed HealthCo Healthcare and Wellness REIT, and they may form part of a consortium that takes on the business, or at least part of a solution.

Northwest already has a close relationship with Epworth and St John of God, being its landlord.

Shares in HealthCo were trading higher on Monday after shareholders had already factored in the likelihood of Healthscope’s collapse.

Earlier, they sold off on concerns HMC Capital could be a buyer, creating conflicts of interest and deterring other suitors, which could limit competitive tension.

Lease agreements remain in place but would be terminated if Healthscope stopped paying rent – it has already defaulted on some rent payment obligations.

The situation now leaves Brookfield’s future as an investor in Australia under a cloud, with some suggesting the latest collapse will tarnish the prolific deal maker’s reputation in Australia.

However, market experts believe the Australian government would unlikely to block any future deals the Canadian buyout firm may try to undertake.

Brookfield previously tried to purchase Origin Energy – one of the country’s largest energy retailers.

Canada is considered a close ally of Australia and Brookfield has close connections to the Canadian government, what with Canadian Prime Minister Mark Carney being Brookfield Asset Management’s former chairman.

Sources say that the best hospital’s within Healthscope’s portfolio of 37 assets includes Knox Private Hospital in Melbourne, Norwest Private Hospital in Sydney, National Capital Private Hospital in Canberra, Prince of Wales Private Hospital in Sydney and Gold Coast Private Hospital.

Sources say only six of its hospitals in its portfolio of 37 assets are profitable, and some may need to close as part of a portfolio restructure.

This is despite McNicol saying it had no plans for hospital closures or redundancies.