By Emma Koehn


Australian healthcare assets are once again in the hot seat and after spending the last two years dealing with the fallout from the pandemic, ASX-listed Ramsay Health now finds itself fending off the overtures of a cashed-up and resolute suitor.

The KKR-led consortium’s mammoth $20 billion bid for Ramsay isn’t a flash in the pan. The global investment giant has had its eye on Ramsay, Australia’s largest hospital operator, since at least the beginning of 2021.

Having carefully assembled a consortium of investors, including healthcare worker superannuation fund HESTA, KKR is hoping to replicate the success of Canadian asset manager Brookfield, which bought Healthscope in a $4 billion deal in 2019.

The Healthscope deal, a 13-month affair, had its twists and turns as rival suitors – Brookfield and BGH Capital- made their pitch to shareholders. While the race for Ramsay remains uncontested for the moment, KKR won’t be counting on a victory just yet.

KKR’s interest is a signal that international investors are looking deep into the future when it comes to the potential of local healthcare assets, which have seen their share prices on a rollercoaster since the coronavirus pandemic began.

“The market has been fixated on short-term earnings. KKR is willing to take a longer view around the company and what it could be… and health spending is not going anywhere,” says John Ayoub, portfolio manager at WAM Leaders, which holds Ramsay.

Ramsay Health Care is truly one of a kind target in the Australian market. Its network of 72 Australian hospitals and day surgeries is the largest in Australia, and its global footprint, which includes hospitals across Asia, the UK and Europe, has recently expanded further to include UK mental health care operator Elysium.

Despite its extensive footprint, Ramsay’s share price has been under pressure for years and the pandemic hit it hard. Last week’s bid pushed the stock to five-year highs, but between Valentine’s Day of 2020 and April 19 of this year, Ramsay shares were down 19.3 per cent.

That’s why some analysts have labelled KKR’s $88 a share offer for Ramsay “opportunistic”.

Private equity’s appetite for local healthcare companies has also recently been on display in the fierce battle between BGH Capital and UK investor CapVest for fertility treatments operator Virtus Health.

With a market cap of $700 million, Virtus is small fry compared to Ramsay, but many of the same dynamics are at play here. Like Ramsay, Virtus has a global network and a strong portfolio of local fertility treatment centres, but its share price has come under pressure due to pandemic-related disruptions.

Over the past four months, the Virtus share price has been pushed 21 per cent higher as CapVest and BGH have engaged in a sustained bidding war for the company.

Those with knowledge of the bidding tell this masthead that the competing suitors have both identified Virtus as one of the most attractive assets on offer in Australia’s IVF sector because of the company’s overseas footprint.

Ramsay and Virtus are both big on potential, have seen the pandemic depress their respective share prices, and analysts agree that private ownership would serve both well. In Ramsay’s case, KKR should help unlock the company’s hospital assets, which are the only properties of their kind in the Australian market.

However, there are a host of pandemic-linked challenges the soon-to-be new owners of the local health assets will need to contend with. KKR, in particular, will find its hands full if it’s successful in its pursuit of Ramsay.

Ramsay, which saw a 29.7 per cent drop in statutory profit for the six months to February, was hit hard by staffing shortages, particularly in the UK. And it’s a problem that’s here to stay.

Industry insiders say healthcare staffing, particularly nursing, will remain a significant challenge for a company like Ramsay.

After decades of over-reliance on skilled migration to cover healthcare roles, Australia is facing a crisis of talent which will remain a pain point no matter who ends up owning the hospital operator.

Chief executive of the Australian Private Hospitals Association, Michael Roff, says the shortage of nursing staff across the sector will take years to fix.

“Our nursing workforce has been propped up for years by skilled migration. During [COVID], many of our overseas-trained nurses went home. They haven’t come back in a big way at all,” he said.

Private healthcare-led surveys suggest there is a shortfall of around 5,500 nursing jobs that can’t be filled.

Recruiting and retaining staff will be an expensive exercise and the situation might only be solved by government policy measures, rather than the owners of the private hospitals.

“There needs to be an opening up of the pathway for permanent residency [for overseas staff]. This shortage is a global issue and we’re in a globally competitive marketplace,” Roff says.

Ramsay has already been upping its investment in staff, doubling its intake of graduate nurses for 2022.

One of the company’s current suitors, healthcare workers’ superannuation fund HESTA, has made sure to signal the importance of the workforce in the future success of the business.

“They are vital to the ongoing success of Ramsay and are at the forefront of the consortium’s shared vision for expansion,” HESTA boss Debby Blakey said last week.

Analysts watching the stock all agree that a private equity bid makes sense, and presents a good deal for Ramsay investors.

“Assuming deal completion within six months, this implies annualised returns of 21% [to] 30 per cent for international/domestic shareholders,” Macquarie analysts wrote last week.

But when it comes to ongoing challenges for the sector, almost all stock watchers note that these may well continue for some time.

“While the [healthcare] industry is defensive, it remains hard to predict Ramsay’s path of recovery due to COVID-19,” Morningstar analysts note.

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