Dual-track as Kohlberg Kravis Roberts pursues Ramsay Health Care

Ramsay is Australia’s second-largest healthcare provider.

Further details are emerging about how Kohlberg Kravis Roberts and its superannuation fund backers plan to go about funding its acquisition of Ramsay Health Care.

While it is widely known that KKR is considering a sale of Ramsay’s properties, should it buy the country’s second-largest healthcare provider, and that it also has banks providing funding options, it has now emerged that the private equity firm is effectively running a dual-track process over the financing.

A sale of Ramsay’s real estate – and perhaps other assets, such as its pharmacy business or the business in France – is competing against the second funding option, where it makes the deal stack up by gaining a highly attractive package of debt and assets are retained.

DataRoom understands that KKR is looking for a price on the real estate that gives a yield of 3-4 per cent should it choose this option, equating to more than $8bn.

Some believe this could be a hard ask, given that bonds are producing their best yields in over seven years.

Separately, banks are being asked to come up with an aggressive funding package to finance the transaction.

So far, Jefferies, Bank of America, Barclays and Credit Suisse are working on this option, but the thinking is KKR is going far and wide and many banks will line up.

Yet obtaining financing at highly attractive levels is not going to be as easy as it was a year ago, in a rising interest rate environment.

KKR has been in talks with Ramsay before about buying the business, but it did not meet its price expectations.

It is now offering $88 per share and is carrying out due diligence, although some believe Ramsay will ultimately want a higher price than what is currently on the table.

KKR is thought to be highly committed to the deal, despite Ramsay shares currently trading well below the offer price at around $77.

Should it come back with a lower offer, it is expected to be a major surprise.

In France, Ramsay owns 52.79 per cent of Ramsay Sante, the second-largest private care provider in Europe.

The understanding is that should Ramsay pursue real estate asset sales, it will carve up the portfolio and sell to multiple buyers.

It is understood that, of the $12bn-odd of equity needed for the transaction, KKR will provide about half.

Partners such as Hesta and Abu Dhabi Investment Authority are expected to account for the remainder.