Healthscope suitors win exclusive due diligence on four hospitals

Healthscope receiver McGrathNicol is understood to have selected parties to carry out exclusive due diligence on four hospital sites in the final stages of the sale process.

DataRoom understands that healthcare providers have been told that they have exclusive due diligence rights on the National Capital Private Hospital in Canberra, the Gold Coast Private Hospital, the Hobart Private Hospital and Homesglen Private Hospital in Melbourne.

It comes after a sale process was run with help from investment bank Houlihan Lokey.

Sources believe that the two most likely parties to have entered exclusive talks on the National Capital Hospital are Ramsay Health Care or Epworth HealthCare, while the Gold Coast Private Hospital is thought to have entered in exclusive talks with either Mater Health or St John of God.

Mater has a strong operating presence in Queensland when it comes to private hospitals and had also been earlier discussed as a contender to buy Sunnybank Private Hospital.

St John of God has a stronger operating presence in other states.

Cabrini Health is expected to take Homesglen in Melbourne.

DataRoom understands that internal meetings were called on Monday at Healthscope by chief executive Tino La Spina to provide updates on the latest developments from the sale process.

An email was sent out to staff.

As reported at the weekend, a swift outcome is now expected for the Healthscope auction.

It comes with talk that receiver McGrathNicol will announce lenders owed $1.6bn could get over 55c in the dollar on their investment, with Calvary expected to pay between $100m and $140m for the 12 hospitals leased from Northwest Healthcare and the top-tier hospitals potentially attracting an overall price of $600m combined.

The hospitals leased from HMC Capital could sell for about $100m.

As reported, so far, it’s expected Calvary Healthcare will take the 12 Healthscope hospitals leased from Northwest Healthcare Properties.

Initially, Pacific Equity Partners, which owns private hospital operator Healthe Care, was in talks about operating the hospitals leased from Northwest.

Ramsay Health Care is also thought to have bid for the Prince of Wales Hospital in Sydney.

It’s still unclear what operators take sites leased from the interests of HMC Capital, but Epworth HealthCare is one of the groups that has been in talks.

Some groups are understood to have declined to pursue a deal with the Australian listed real estate group due to differing views on rental assumptions.

Healthscope collapsed in May with $1.6bn owing after the business was purchased by Brookfield in 2019 for $4.4bn.

To finance the transaction at the time, Brookfield sold Healthscope’s property sites for $2bn to real estate groups.

Final bids in the sale process were received at the end of last month.

The decision to move quickly on a sale is believed to be linked to a desire to limit the uncertainty surrounding the hospital operator’s suitor for its staff and stakeholders.

Among Healthscope’s syndicate of about 20 lenders are Australia’s top four banks, but global funds Polus and Canyon Partners bought debt at a later stage at about 50c in the dollar from some lenders and are set to make a total return of over 40 per cent on their investment, reaping a $150m windfall as the holder of over 30 per cent of the loans.

DataRoom understands that existing not-for-profit operators will largely wind up with the majority of the 37 Healthscope hospitals within its portfolio, with the sites for larger hospitals on Healthscope’s balance sheet or leased from governments.

A number of Healthscope hospitals are loss making and the challenge has been finding a way for the operations to remain open.

Not-for-profit healthcare operators do not pay payroll tax, which ranges from 2.5 per cent to 6.5 per cent.

It is estimated the saving adds about $100m in annual earnings to the Healthscope bottom line.