Private equity eyes Medibank Private’s healthcare services business

Medibank would have almost certainly rebuffed the proposal swiftly, given its view of healthcare services being the area of the business it hopes to grow. Picture: NCA NewsWire / Paul Jeffers

A private equity firm is believed to have approached Medibank Private recently to buy its healthcare services business.

There has been speculation that the $8.9bn listed health insurer could be in the crosshairs of a suitor as private equity firms look to scoop up more Australian listed companies.

Yet Medibank would have almost certainly rebuffed the proposal swiftly, given its view of healthcare services as the area of the business it hopes to grow.

At the Macquarie Australia conference in Sydney this month, chief executive David Koczkar played up Medibank’s strategy of investing in short-stay hospitals, primary healthcare and tele-health, with the operations contributing strongly to Medibank’s earnings and improving healthcare outcomes across the board, including its own customers.

Mr Koczkar highlighted the synergies for its core health insurance business, with other benefits including a diversification of its earnings and the long-term reduction in preventable claims.

When asked about approaches at that time, he said he did not comment specifically on whether the company had received buyout offers but Medibank had nothing to disclose.

Until December 2019 there were rules that prohibited any one shareholder from holding more than 15 per cent of Medibank. This rule had been in place for five years from December 2014, when the business listed at $2.15 per share, creating a $5.68bn public insurer.

One possible outcome is that a consortium comes forward with a proposal and Medibank is broken up.

DataRoom understands that one of the parties to have run the ruler over the health insurer is Wesfarmers, but it is not currently looking at Medibank.

Analysts believe a deal would make sense for the Perth-based conglomerate, which is looking to build a specialised healthcare unit and recently hired well-regarded Bupa Health Insurance boss Emily Amos as the unit’s managing director.

Wesfarmers has owned insurers in the past, and there are opportunities to drive earnings across its retail business by cross-selling products to customers.

Wesfarmers owns API, which operates Priceline pharmacies, along with Bunnings, Officeworks, Kmart and Target.

But Wesfarmers wants to be in healthcare management. Medibank mostly operates as an insurer and only a small part of the portfolio is dedicated to healthcare services.

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

In 2020, Medibank purchased a 49 per cent stake in the 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 policyholder growth.

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 left Medibank last June. Bank of America owns Merrill Lynch.