Medibank Private in a healthy position for buyout bid

Medibank is Australia’s largest private health insurer with a market share of about 27 per cent. Picture: Hollie Adams

Those keen to find out the next major buyout proposal in the Australian market should pay close attention to the $8.7bn Medibank Private.

Some believe that could be the latest group in the crosshairs of a suitor following Kohlberg Kravis Roberts’ $20bn offer to buy Ramsay Health Care.

The Australian-listed health insurance provider has been in the firing line for mergers and acquisition activity before, with US-based health insurance firm UnitedHealth Group circling the business.

Apparently, UnitedHealth came close to buying Medibank at the end of 2019.

Its market value is close to $US470bn so Medibank would be well within its grasp.

At the Macquarie Australia Group investment conference in Sydney last week, Medibank CEO David Koczkar did not comment specifically on whether the company had received buyout approaches but said that Medibank had nothing to disclose in such a regard.

Yet some believe that private equity firms have also been looking at Medibank over time. The business could be in private equity’s sweet spot as a former government-owned business that had further cost cuts and operational efficiencies to make.

As of December 2019, the rules no longer apply that prohibit any one shareholder from holding more than 15 per cent of the company. This was in place for five years from when the business listed at $2.15 per share in December 2014, creating a $5.68bn public insurer.

Previously, Bank of America was involved when UnitedHealth was circling Medibank, but that was when the health insurer was run by former Merrill Lynch Australia boss Craig Drummond who retired from Medibank last June. Bank of America owns Merrill Lynch.

Medibank is Australia’s largest private health insurer with a market share of about 27 per cent ahead of Bupa.

Any bidder would no doubt wait until after the federal election, and some believe a Labor-led government could make it tougher for a suitor to justify a deal, given the party typically takes a tough stance on health insurers lifting premiums.

Time will tell if a party arrives with a formal offer, but for now, Medibank is focused on M&A activity of its own, investing in short-stay hospitals, primary healthcare and Tele health.

DataRoom understands Medibank has held talks with Fresenius Medical Care about buying into Cura Group day hospitals and has announced a new partnership with Healthe Care.

In 2020, Medibank purchased a 49 per cent stake in East Sydney hospital in Woolloomooloo. Last year it formed a joint venture with more than 40 specialist doctors to develop a short-stay surgical facility in Kew, Melbourne.

For the six months to December, Medibank delivered a 2.7 per cent fall in net profit to $220.2m despite a revenue increase, as higher costs related to the global pandemic offset policy holder growth.