Sonic Healthcare medical centres in need of a check-up

Sonic Healthcare has one of the most valuable medical centre portfolios in the country. Picture: iStock

The strong price that Healius achieved for its medical centre division has prompted other listed and family-run groups to consider a sale of similar assets.

The situation has some questioning the intentions of the $15bn listed Sonic Healthcare when it comes to its medical centres division, which some estimate could be worth somewhere between $500m and $1bn.

Sonic has one of the most valuable medical centre portfolios in the country, and while the company is typically more of a buyer rather than a seller of assets, some believe it would at least have to consider whether such a move makes sense.

Analysts say that the real drawcard for Sonic to own medical centres has been that they generate business for its pathology arm.

Sonic has 233 medical centres as part of its division called the Independent Practitioner Network, in what is one of the largest GP operations in Australia.

Any sale would only work for Sonic if some sort of arrangement existed where it was able to secure pathology referrals from the GP operation, likely to be by way of sharing the same premises.

Upside would exist for any buyer that could drive down costs.

But returns from its medical centres are not as lucrative as other aspects of the overall operation and a sale of all or part of the portfolio could help Sonic reduce its debt levels, currently at about 29.5 per cent, and offer firepower for other strategic acquisitions globally, adding to its track record of buying businesses to fuel growth.

The medical centre industry is highly fragmented in the private market, and there are also opportunities for buyers to secure portfolios comprising about 10 or 20 centres.

Last month, private equity firm BGH Capital paid $500m to Healius for its medical centre operations, equating to a price of about 13 times its 2019 financial year earnings of $37.5m.

It was considered a good result in the current COVID-19-impacted environment.

BGH Capital is believed to be on its way to building a major alternative healthcare services business that could list on the ASX in up to five years’ time for as much as $2bn, and the thinking is it could be in the market for more assets.

It held discussions with Henry Bateman about options, thought to have included merging his Cornerstone Health business with the Healius assets, but the plan has not played out.

It suggests that private equity has at least knocked on Sonic’s door with regard to its medical centres and asked it to consider its options.