The Ramsay Health Care Limited (ASX: RHC) share price is on watch after announcing a UK acquisition called Spire Healthcare Group PLC (LON: SPI).
Ramsay’s acquisition
What’s Spire Healthcare? It’s a London Stock Exchange-listed, hospital group in the UK focused on the private patient market and a leading provider of high-acuity care.
It has a strong collaborative partnership with the National Health Service (NHS). It has 39 hospitals and eight clinics across England, Wales and Scotland.
Spire provides services to private patients that both pay for themselves and insured patients. It offers a high level of care for patients with cancer, cardiac and other critically ill patients operating 17 cancer centres and five critical care units. It is also a leading provider of orthopaedic services.
Why is Ramsay buying Spire?
Ramsay believes that the proposed transaction will be transformational for Ramsay’s UK business and has a compelling strategic and financial rationale, delivering significant benefits of at least £26 million per year from procurement savings benefits, improved capacity utilisation and a reduction of administrative costs following the proposed de-listing of Spire.
This acquisition is expected to deliver high single digit profit / earnings per share (EPS) in FY24 and a return on invested capital (ROIC) above weighted average cost of capital (WACC) in FY24.
One of the benefits could be the creation of a more valuable partner for the NHS. There are approximately 5 million patients, as at March 2021, waiting for NHS hospital treatment in England which is expected to create sustained demand across all payor groups.
What’s the price?
The offer of £2.40 per share, which was a premium of around 24% compared to yesterday’s closing price, values the business at £2 billion on an enterprise value. The deal will be funded with debt.
The Spire Board is unanimously recommending its shareholders vote in favour of the scheme and the board is going to vote in favour of it.
But Ramsay may need to divest some of its UK hospitals or clinics to get this deal through the UK competition regulator.
Summary thoughts
It seems like a good deal considering there’s a high level of demand for healthcare services in the UK. Although after the next year or two, I’m not sure how much demand there is going to be.
There are ageing tailwinds, but COVID-19 has had some negative effects. There’s also the longer term difficulty of private health insurance affordability in Australia, though it’s good to diversify away from Australia with this.
I think there are other ASX growth shares in the healthcare space that could be worth looking at.
