Quadrant set for partial exit via Estia Health’s $726m IPO

Estia will sell 75.9-146.8 million shares at A$5.17-6.96 apiece, according to a prospectus. Assuming the offering prices at the mid-point of the indicative range and the selling shareholders exit 25% of their stakes, the proceeds would be approximately A$663 million. Selling shareholders would receive A$130.5 million of the funds.

Quadrant committed A$90 million in equity for an approximate two thirds majority stake in Estia, with the enterprise valuation said to be in the region of A$170 million. The principal seller, founder Peter Arvanitis, retained one third of the business and continued as CEO. Mercury Capital bought a minority stake in Estia in July of this year.

As a result, Quadrant currently owns 57.5% of the company, with Arvanitis holding 25.9% and Mercury 14.1%. Each group has said it plans to sell up to half of its interest in the business.

Based on a pricing at the upper end of the scale, Estia would have a market capitalization of A$1.13 billion and a valuation of 23x forward earnings. The company is one of the largest providers of residential aged care services in Australia, with 3,203 places across 39 facilities in Victoria, South Australia, New South Wales and Queensland.

Estia expects to complete three acquisitions prior to going public and a further two by February 2015. This would make the company the fourth-largest domestic player in its industry with 44 facilities. When Quadrant acquired Estia it had 1,100 places across 10 facilities.

"We will continue to grow the business through brownfield acquisitions and possibly some greenfield, and we will be part of the consolidation that is occurring within the sector," said Marcus Darville, a director at Quadrant, told AVCJ when the deal was announced. "The sector has been attracting more institutional capital and we think that will continue. There are no indigenous Australian listed companies in the space but we expect that to change as well."

As of June 2013, Australia's residential aged care industry comprised approximately 1,000 providers operating 2,700 facilities with around 190,000 places. Revenues were estimated to be A$12.9 billion in the 2013 financial year. Non-profit and government-owned providers account for 64% of places, with the private sector operating the remainder.

The Department of Health forecasts that approximately 259,000 places in care facilities will be required by 2022 to accommodate the needs of an aging yet affluent population. This implies an average 7,667 new places will need to be introduced each year.

Estia reported pro forma revenues of A$219 million in 2014, up from A$178.4 million the previous year. EBITDA was A$46.9 million, up from A$40.8 million. The company forecasts pro forma net profit of A$42.6 million in 2015.

UBS, Deutsche Bank and Morgan Stanley are the joint lead managers for the IPO.

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