This morning HSO announced the sale of its Asian Pathology business to private equity group TPG for just under A$300m. The deal includes 39 pathology labs in Singapore, Malaysia and Vietnam and exits HSO from the pathology sub-sector in Asia. The price was weaker than perhaps the market had expected transacting on 15.3x EBITDA, the bulk of Asian healthcare trading around the 20x mark, however to achieve that they would have needed some strategic industry players to remain in the race at the pointy end of the bidding process, but alas, it was a battle between Private Equity players with the deal being done on a lower multiple.
The pathology business accounted for $18.2m of HSO’s earnings in 2017 or around 4% of the group while the hospital operator will book a gain on the transaction of $165m in their 2018/19 results. HSO has had a tough time recently in terms of their domestic hospital operations, however there have been a number of potential acquirers knocking on the door in recent times - the sale of the Pathology Division could be another reason for them to come back into the fray.
Healthscope (HSO) Chart
Market Matters Take/Outlook
This is a fascinating corporate play at the moment with a number of suitors circling the private healthcare operator, the latest of which offered $2.50 per share. The market is expecting EBITDA of $398.1m for FY18 when they report later in August on revenue of $2.419b, dropping down to a profit of $165.2m down from $180m last year. The dividend is expected to come in at 3.2cps, which is down from the 3.5cps they paid this time last year. We like the stocks at current levels.
