Healius Healthcare Inked Strategic Deal with BGH Capital, Stock Zoomed Up 19%

Healius Healthcare Inked Strategic Deal with BGH Capital, Stock Zoomed Up  19%

Summary

  • Healius’ $500 million medical centres sealed deal with BGH would ensure simplification of the portfolio, thereby allowing enhanced focus on operations.
  • Sales proceeds would provide robustness to the balance sheet which in turn would facilitate carrying out value generative initiatives.
  • Sales process is expected to further bolster Healius’ liquidity position, preserved through several short-term cost reductions.

Australian healthcare company, Healius Limited (ASX: HLS) remained in the spotlight on the back of strategic deal. Despite the troubled and unsettled Covid-19 scenario, Healius entered a lucrative deal for its medical centres and dental practices.

Healius’ Managing Director and Chief Executive Officer, Dr Malcolm Parmenter confirmed the sale as successful, helping the company to achieve an “an attractive valuation” despite the unsettled pandemic scenario.

Notably, few months before in February, Healius rejected 2.12 billion offer from private equity firm Partners Group for acquiring the whole company. Many estimated that the turn down of offer was due to undervaluation of the healthcare provider.

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Healius highlighted that the company would be trading its primary care businesses to BGH Capital. The announcement of binding agreement worth $500 million between the companies on a cash and debt free basis was positively received by investors.

Following the announcement, the stock soared high by ~ 19% to close at $3.010 as on 15 June 2020. Healius’ medical centres continued to realise strong revenues during the pandemic period owing to its telehealth services. Many believe that the deal would be strategic step for restoring health of the company.

Australia’s leading BGH Capital is a private equity firm having vast investment experience in Australian healthcare supporting its commitment towards forging a sustainable business. Moreover, the country’s aging population and the government support to the healthcare companies catapults the attractiveness of health firms for the private equity investments.

The sale would allow Healius to simplify the portfolio and centre its operations to scalable diagnostics and day hospital business, while it moves ahead with its focus for delivering healthcare related facilities.

Dr Parmenter also indicated that the process would reduce net debt of the company and free its investment capital, altogether strengthening the company.

Overview of the Sales Proceeds

Binding Agreement worth $500 million allows the acquisition of 100% of Healius Primary Care by BGH Capital. Healius would receive cash proceeds of ~$470 million from the sales proceeds.

Healius, following the agreement, would hold Day Hospitals and IVF at its Medical Centres division. Notably, Healius under the long-term rent lease would continue operating its existing pathology collection centres and imaging clinics which are stationed within the medical centres.

The proceeds considered the decline in dental service demand due to COVID-19 restriction. Owing to the impact, the agreement allows deferment of $75 million if at the time of completion, earnings in the dental clinic are not being able to return to pre-pandemic level. The outstanding balance following the completion would be paid over the 18 months as the business revive. The completion is expected before the end of year 2020.

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Transactional Service Agreement for facilitating transition and supporting separation forms one important component of the agreement.  Healius would provide certain services to the Healius Primary care for 12 months post the completion during which Healius Primary Care would continue using Healius name.

The company signed the refinance of its syndicated bank debt facility which has increased by $70 million to $570 million while the maturity stretched to January 2024.

Glimpse at trading amidst the Crisis

Healius Trading Update in April highlighted early stabilisation signs and revenue recovery. Further, economic reopening induced by improvement in the health conditions has transpired higher activities for the business, while COVID-19 pathology testing continued. The lifting of relevant clinical restrictions has provided strong positive nudge to Day Hospitals, Dental and IVF sector.

Under Sustainable Improvement Program, the company would set many short-term cost reductions owing to the pandemic impact. Diagnostics has showed steady and consistent growth while contributing over 80% of group EBIT. Meanwhile, Day Hospital’s growth trajectory following the ramp-up of new sites continue to provide robustness to the company.

Glimpse at Healius post sales

The company has transformed its business operations through new and extended patient offerings, updated facilities and systems. The sales proceeds would further simplify Healius portfolio, allowing it to provide undivided focus on specific segments. The segments include:

Pathology Collection Centres

Prominent scale player in the mature market in pathology, Healius laboratories witness one-third of the pathology tests. The company enjoys clinal dominance in growth areas such as genetics and dermatology. Meanwhile, scalable platforms further facilitate the delivery of synergies.

Imaging Clinics

Imaging is a growing market where Healius operates witnessing over 3 million radiology examination per annum. The success in major PPP hospitals provides strong support to the company which provides strong position in attractive hospital sector. Furthermore, long-term leases support the Unique customer segment in Medical. The Single, unified and leading IT platform which is approaching completion would provide strong technological integration support to the healthcare provider.

Day Hospitals

Healius has registered profitable growth in Montserrat and remains one of the prominent players in the fragmented industry. The proven synergy platforms along with the successful funding model provides support to the company. At the same time, the positive budding technological, economic and regulatory scenario would provide lucrative growth prospects.

Notably, the deal with BGH Capital would provide simplification of the portfolio assisting the company to maintain its focus on the diagnostic business and Day Hospitals. Meanwhile, the company believes that it would be well positioned to execute the value generative initiatives through strong balance sheet.

 


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