An investment consortium led by global private equity buyout firm KKR, and including health services superannuation fund HESTA, has made a $20 billion plus bid to acquire Australia’s largest private hospitals operator Ramsay Health Care (ASX: RHC).

Ramsay employs close to 90,000 people globally and the deal would be the largest leveraged private equity buyout of an Australian company.

Ramsay announced the $88-a-share proposal on 20 April. The company said that under the proposal shareholders would have the option to receive part of the consideration in unlisted scrip in the consortium’s holding entity. This provision is believed to have been included to accommodate key shareholder, the Paul Ramsay Foundation which holds 18.8% of the company. The foundation was set up by the late Paul Ramsay who founded the company in 1964.

Sovereign wealth fund The Abu Dhabi Investment Authority is also believed to be a member of the consortium.

HESTA confirmed on 21 April that it was part of the consortium.

HESTA chief executive Debby Blakey said the transaction represented an exciting opportunity for the $68 billion industry fund to invest in the future growth and success of Australia’s leading private hospital provider.

“We believe this investment has the potential to have a positive impact on patient health and wellbeing in Australia and abroad whilst helping to generate strong returns for our members,” she said.

Blakey said the potential investment would continue HESTA’s strong focus on investing in healthcare, one of the fastest growing sectors of the Australian economy. Healthcare was also a sector in which almost a third of the fund’s 900,000 members worked.  

The conditional, non-binding offer proposes acquiring 100% of Ramsay’s shares by way of a scheme of arrangement.

The proposal is subject to conditions including:

  • completion of satisfactory due diligence;
  • no disposal of any of Ramsay’s subsidiaries or properties;
  • final approval from the consortium’s investment committee;
  • entry into a scheme implementation deal on customary terms and conditions;
  • regulatory, including Foreign Investment Review Board, approvals;
  • Approval by Ramsay shareholders.

Ramsay said that after reviewing the indicative proposal with its advisers and seeking further information from the consortium in relation to its sources of funding, structure and regulatory approvals required to complete a transaction, its board had agreed to provide the consortium with non-exclusive due diligence access.

Ramsay noted that, with its partner in the venture, it was continuing to explore a potential sale of its Malaysian joint venture, Ramsay Sime Darby Health Care Sdn Bhd; it had granted due diligence to the KKR consortium on the basis that this process continued.

Ramsay also noted that the indicative proposal had been made on a confidential basis and the consortium had reserved the right to withdraw it in the event it ceased to be confidential which had now occurred. It said it was reporting details of the offer in response to media speculation.

At $88-a-share, the bid represents a 37% premium to the shares pre-bid closing price of $64 and values the company at an equity value of $20.1 billion or about $28 billion including debt. Ramsay’s share price rose almost 25% to $80 in response to the bid.

An ASX-listed company for 25 years, Ramsay has a market capitalisation of $14.8 billion. The company generates annual revenue of about $15 billion and EBITDA of $2.5 billion. More than two-thirds of Ramsay’s revenue is generated outside Australia, mostly from its European operations.  

Ramsay’s French business, Ramsay Santé operates 132 acute care and mental health facilities. Another European unit, Ramsay UK, acquired mental health business Elysium Healthcare in December in a $1.4 billion deal.

Ramsay operates 72 private hospitals and day surgery units in Australia.

Last year, Ramsay failed in a $3.9 billion attempt to acquire UK private hospitals operator Spire after some of the company’s largest shareholders opposed the bid.

COVID-19 has affected Ramsey’s performance over recent reporting periods as the pandemic has resulted in widespread cancellation of non-essential surgical procedures. Current financial year first half profits, reported in February, were down nearly 30% at $158.9 million, although revenue was up 1.2% to $6.687 billion.

Ramsay has appointed UBS AG, Australia as its financial adviser and Herbert Smith Freehills as its legal adviser on the bid.