Healthscope will list on the sharemarket at a 9 per cent discount to Ramsay Health Care on a price-to-earnings multiple basis, but chief executive Robert Cooke says he welcomes comparisons to the market leader because it illustrates the company’s growth potential.
Following a bookbuild with institutional investors that finished at midday on Thursday, Healthscope’s private equity vendors TPG and The Carlyle Group settled on a listing price of $2.10, sources said.
At that price, Healthscope will begin trading on a multiple of 21.9 times forecast net profit for the 2015 financial year. This compares with Ramsay, which trades on a multiple of about 24-times.
The Healthscope float will be the biggest since the 2010 privatisation of QR National, now known as Aurizon. The Melbourne-based company runs 44 private hospitals, as well as medical centres and pathology operations.
Mr Cooke said he has “a lot of respect” for both Ramsay and pathology and medical centre operator Sonic Healthcare.
“I just think it demonstrates we can do something similar, albeit a little bit different. Both companies have got a great record and will continue to have a great record, we just want to be greater.”
Ramsay runs 69 private hospitals. It has successfully invested in some of its leading properties in recent years, however Healthscope has lagged in this area, Mr Cooke said.
“From the outside I’ve watched as Ramsay invested heavily in their tier one [hospitals] and Healthscope by and large did pathology, looked at aged care and perhaps didn’t realise the potential of the growth around the tier one hospitals.”
Mr Cooke has history with Ramsay he said was a driving force behind his interest in the turnaround project at Healthscope. He previously ran Affinity Health, which was backed by private equity firm CVC.
Ramsay bought Affinity and its 60 hospitals for $1.4 billion in 2005. However due to concerns from the competition regulator, 14 hospitals were not able to be included in the transaction. Those hospitals were bought by Healthscope.
“Those 14 are really one of the main reasons I’m back here because they were the 14 that had the best growth potential,” Mr Cooke said. Since he was appointed to run Healthscope, after TPG and Carlyle bought the business for $2.7 billion in 2010, Mr Cooke has put in place a number of initiatives that he expects will drive growth as the business returns to the market. Healthscope has begun publishing quality data for all of its hospitals. It has improved its relationship with private health insurers – the biggest source of its revenue. With the country’s second-largest insurer Bupa, Healthscope has committed to forgoing revenue in the case of avoidable errors.
Mr Cooke is also keen to pursue growth in Asia. However he believes the best way forward will be through management of hospital assets, rather than acquisitions.
“I’m not trying to reinvent the wheel of the hospital business, but the things around the quality and things around the Asian focus will be slight differentiators [to Ramsay],” he said.