Ramsay Healthcare (RHC) presents a unique investment opportunity.
In April, KKR, a mammoth private equity firm that has USD $439 billion in assets under management, led a consortium of investors to submit a AUD $88.00 per share or $20.1 billion bid to purchase Ramsay Healthcare. The bid represented a 36.7% premium to Ramsay’s share price at the time.
An ageing population coupled with the current healthcare crisis, has made Ramsay an attractive takeover target as demand for the services of Australia’s largest private hospital operator is only going to strengthen in the future.
Ramsay is well-established worldwide, having hospitals, day surgery units, private care services and specialist clinics that deal with outpatients across four regions:
- Australia – largest private hospital operator that owns the likes of Pindara and John Flynn Private Hospitals on the Gold Coast.
- Europe – major presence in Denmark, Norway, France and Sweden making Ramsay one of Europe’s leaders in private hospitalisation and primary care.
- UK – has a network of day procedure centres and 34 acute hospitals where patients receive short-term treatment for a severe injury or illness, an urgent medical condition, or during recovery from surgery.
- Asia – its presence in this region is limited but Ramsay still owns three hospitals in Indonesia and a nursing college in Malaysia.
Over its four regions, Ramsay employs approximately 86,000 people and attends to over 8 million patient every year across its 532 facilities.
Ramsay’s share price is currently trading at approximately $70.00 per share, representing a potential upside of 25% to KKR’s takeover offer of $88.00 per share. The reason Ramsay is trading at a discount to the offer price is doubt over whether the takeover will proceed.
KKR has an ownership stake in Elsan – a French hospitals group that is a direct competitor with Ramsay Santé (a subsidiary of Ramsay Healthcare and the largest private hospitalisation provider in France). The issue affecting the takeover is the need for KKR to do its due diligence of Ramsay Santé. This is unlikely to happen as Ramsay will not divulge information to a direct competitor.
Investment banks, Goldman Sachs and UBS, are working on a solution to avoid the need for KKR to gain access to Ramsay Santés books. It seems as if Ramsay Santé will be spun off and KKR will purchase the remainder of Ramsay’s business including the Australian division which provides the bulk of Ramsay’s earnings.
As we see it, the takeover will either be accepted and shareholders will be the beneficiary of a 25% increase in the share price or the takeover offer will get rejected, leaving investors owning a quality asset with long-term and sustainable growth projected.
Buy last sale $70.50