Carlyle, TPG pick up Healthscope for $1.73 billion

The deal delivers Australia’s largest private equity investment since 2007, and apparently trumps sole rival bidder Kohlberg Kravis Roberts & Co. on price, according to reports.

“After careful consideration, the board has unanimously concluded that the consortium’s offer provides shareholders with an excellent opportunity to realize considerable value,” Chairman Linda Nicholls said publicly.

AVCJ sources indicated that the final offers came in very close to each other, with the Carlyle/TPG result partly thanks to their success in tying up the larger consortium of banks to provide the leverage behind the deal. They indicated anywhere between 13 and 19 banks would be involved.

The Blackstone Group, a partner in the winning bid until the week before the deal, dropped out earlier on pricing concerns. An executive close to the deal described the final offer as richly priced but not overpriced. The bid is a 39% premium to Healthscope’s mid-May closing share price.

Healthscope runs 48 hospitals across Australia (around 15% of the local market) plus a private pathology business that extends further afield into New Zealand, Singapore and Malaysia. Sources indicated that the basic motor for the privatization was a long period of stock underperformance, leading management to seek alternative approaches to recapitalize and grow the business organically and through M&A. Carlyle and TPG have indicated they will back incumbent management and their strategy.

Favorable demographics in Australia, with a growing and relatively wealthy aged population seeking private healthcare, is seen as underpinning the sector, with Healthscope’s Asian exposure definitely less important, at least for the present.

Australia’s healthcare sector is ripe with potential deals, with Sigma Pharmaceuticals and National Hearing Care also cited as potential near-term targets. However, Carlyle and TPG are very likely to stay out of such processes on conflict of interest grounds.

AVCJ sources indicated that all private equity firms involved felt that the Healthscope board and their advisors Goldman Sachs JBWere, Lazard and Minter Ellison had engaged effectively with them and managed the auction well and transparently, with the result a fair outcome. The winning consortium has no plans to split the target’s hospitals and pathology arms, as some reports had forecast. 

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• Topics
• Australasia
• Healthcare
• Buyouts
• Buyout
• The Carlyle Group
• TPG Capital
• KKR
• The Blackstone Group