Deadline for Healthscope bids extended with break-up likely

The deadline for final offers in the sale of Healthscope is now likely to be extended to October. Picture: NewsWire/ Nadir Kinani

At least nine parties are expected to be taken through to the next phase of the contest for Healthscope.

Receiver McGrathNicol has been working to compile a shortlist of suitors for the country’s second-largest private hospital operator, and based on the level of interest so far, the timeline may now be extended.

First round offers were due last week with final offers due in September, but that may now be extended to October.

There will be nine parties taken into the second round, sources say.

DataRoom understands that so far, Catholic not-for-profit healthcare group St John of God is carrying out site visits on some of Healthscope’s hospitals, along with the country’s third largest private hospital operator Healthe Care, which is owned by private equity firm Pacific Equity Partners.

One of the most sought-after hospitals in the portfolio is understood to be the National Capital Private Hospital, which is likely to attract up to five offers.

However, there is a risk that assets like the Sydney Southwest Private Hospital could get no offers at all.

As a result, the sale process is expected to involve a shortlist of parties bidding for individual hospitals rather than the Healthscope business as a whole.

So far, it’s anticipated that the most lucrative offers for the company will involve different parties buying different assets.

However, Healthscope will also be a bidder itself and has proposed owning a business that would be transformed into a not-for-profit structure.

The idea is that the syndicate of at least 20 lenders would lend into the new not-for-profit structure with profits reinvested back into the business.

It is understood receiver McGrathNicol itself and other stakeholders still trying to understand the complexities about how this could happen.

Over time Healthscope could refinance, which would provide existing lenders an exit.

However, some are sceptical about the plan, saying that most lenders are keen to wipe their hands of Healthscope sooner rather than later and will take the option that sees them get the most of their $1.6bn in loans back.

Most expect this to involve offers from various parties and a company break-up.

DataRoom reported in May that Healthscope could become a not-for-profit, but most expect it through the acquisition of an existing not-for-profit operator in the space.

When ABC Learning collapsed in 2008 amid the Global Financial Crisis, it became a not-for-profit. But this was through the purchase of external not-for-profit groups.

While private equity firm Archer Capital bid for ABC Learning, it was the charities – Mission Australia, Brotherhood of St Laurence, Benevolent Society and Social Ventures Australia – that won the right to take control following its collapse with debts worth $1.6bn.

At the time, the Rudd government provided $15m of taxpayer funds for a loan to help fund a charitable takeover of what was then the nation’s biggest childcare chain; the new entity was named GoodStart Early Learning.

A dozen philanthropists – including Robin Crawford, a founding director of Macquarie Bank; Seek founder and BRW Young Rich-lister Matthew Rockman; and former Microsoft boss Daniel Petre – also lent cash to the GoodStart consortium.

The advantage for Healthscope becoming a not-for-profit operator is that it would no longer need to contribute payroll tax, which would likely be a saving of about $100m annually.

Payroll tax is collected by the state and is typically about 5.5 per cent.

Not-for-profit operators such as Calvary, St Vincent’s and St John of God have interest in buying some of the roughly 40 hospitals within the Healthscope portfolio.

Among other firms that have bid for Healthscope assets when the business was up for sale in March by Brookfield are Macquarie Group, Ramsay Health Care, Epworth, Cabrini Health, and Healthe Care. Newcomers are Genesis Capital and Mercury Capital.

Brookfield purchased Healthscope in 2019 for $4.4bn, then sold its real estate for $2bn to help fund the transaction.

The company then became loss-making following the Covid-19 pandemic, when it was hit by higher staff costs and reimbursement payments from health insurers that the industry claims were not enough to cover rising costs.