KKR out of race to buy Ramsay

MORE than $1.5bn was wiped from the value of Ramsay Health Care after private equity group KKR all but pulled its $20bn takeover bid for the hospital operator.

The news was delivered in a letter from the private equity firm to Ramsay chairman Michael Siddle late on Monday. It was disclosed to the Australian Securities Exchange on Tuesday and Ramsay shares subsequently fell 10 per cent – or $7.04, to $63.17.

The country’s biggest private hospital operator faces an undersupply of nurses – pushing wages up – while private health insurers try to lock in three-year contracts with the hospitals with only 1 per cent to 1.5 per cent increase to indexation when costs are rising at up to 4 per cent a year.

The collapse of the deal also represents a massive loss to the investment bankers involved.

KKR’s adviser Credit Suisse and Barrenjoey Capital would have likely earned $25m in fees between them based on a range of 15 to 20 basis points – with the lion’s share likely to have been destined for Credit Suisse on the financing side, noting that KRR is notoriously tight with fees.

On the other side, UBS and Goldman Sachs could have earned as much as $30m between them if the deal had proceeded.

In its statement, Ramsay said it hadn’t yet had time to fully consider the KKR-led consortium’s correspondence, which suggested it was open to further discussions.

“Whilst the consortium recognises that further engagement and access to further due diligence may provide some positive visibility, the information provided in the FY22 results implies that there is meaningful downward pressure on the valuation proposed under the Alternative Proposal,” Ramsay head of investor relations, Kelly Hibbins, said. “The correspondence also stated that should the Ramsay Board be willing to reset valuation expectations and consider a new proposal, the Consortium would move quickly to discuss mutually acceptable terms.”

One source involved in discussions, speaking on condition of anonymity on Tuesday, said the letter “certainly left the door open” and even parties acting for KKR were not absolute in their view the consortium wouldn’t come back to the table.

The Covid-19 pandemic has weighed on healthcare operators including Ramsay, with the shutdown of non-urgent surgeries, staffing shortages due to isolation regulations, and upward wage pressure weighing on earnings.

Ramsay operates hospitals and clinics across 10 countries in three continents, with a network of more than 530 locations. It has 72 private hospitals and day surgery units in Australia and operates clinics and primary care units in about 350 locations across six countries in Europe.

Ramsay said in August that $264m had been wiped off its earnings in the year to June 30 as a direct result of pandemic restrictions and related costs, such as personal protective equipment.

Ramsay’s overall net profit dived 37.6 per cent to $274m, while revenue firmed 4.6 per cent to $13.7bn.

The company warned at the time that earnings would not likely recover until 2024.