With Healthscope in hospital, Ramsay is in focus

The future of Healthscope, the country’s second largest private hospital operator, hangs in the balance.

The woes around cash-strapped Healthscope have prompted private equity firms to pay closer attention to its larger rival Ramsay Health Care, which will shape up as a major winner should the former collapse.

The future of Healthscope, the country’s second largest private hospital operator, hangs in the balance. It’s on course to breach lending agreements in the coming weeks, with financiers owed about $1.6bn.

Brookfield, Healthscope’s owner, is understood to have conceded that there is no longer any equity left in the business. Payments from health insurers have been increasing about 2 per cent annually while costs are rising at least 5 per cent a year.

If Healthscope enters voluntary administration, as some suspect, doctors using its facilities might head to Ramsay, strengthening its position.

Ramsay’s dominance and the fact it owns the real estate for its hospitals means it has far superior margins than its smaller rivals.

Not-for-profit hospital operators don’t pay land tax and payroll tax.

The focus on Ramsay has centred on a potential sale of its British and European business, which has no synergies with its operations in Australia. After it wrote down the value of the UK business by $305m and made a $64.5m tax provision to its European business Ramsay Sante, the market took this as a signal that Ramsay was ready to sell the ­operations.

Another possibility is that private equity bids for the whole business and breaks up the company. With its share price at $34.54 and its market value at $7.87bn, that option may now look compelling.

It’s a far cry from the $88 per share offer that Ramsay rejected from KKR in 2022.

No doubt the David Thodey-led board will be under pressure to extract value for shareholders, who had hopes of cashing out at a far higher price through a private equity deal.

Meanwhile, investment bankers are circling players that might be interested in a recapitalisation of Healthscope.

HealthCo confirmed on Friday that the private equity arm of its parent, HMC Capital, is in talks about a buyout of Healthscope in a quest to protect the rental stream of its funds. Bupa is thought to be in the same camp.

Bain is thought to be plotting its own play for Healthscope, and a third party could emerge.

HealthCo is the landlord of 11 Healthscope properties.

Northwest Properties owns the others and may also get ­involved.

When Brookfield bought Healthscope it sold its real estate for about $2bn. HMC entered the mix at a later stage and bought half of the portfolio through HealthCo, in conjunction with a new HMC-managed unlisted fund, which has debt.

It cut a deal on rents with Healthscope, reducing them for two years in exchange for higher increases over the longer term.