Ahead of his proposed float next month, Healthscope boss Robert Cooke was put on notice today that the Australian Competition and Consumer Commission (ACCC) would closely monitor any expansion of his empire.
On the grounds of its refusal to approve his Melbourne acquisition, Cook will know his brownfield expansion is about the only way he will get past the regulator.
The decision was not unexpected, but in the scheme of things still surprising given the nature of the hospital market in which roughly one third of the market is private. Of that, Ramsay Healthcare has around 27 per cent and Healthscope around 17 per cent.
The revenue is paid nationally from the private health funds and in the case of Brunswick, Melbourne City is a short walk away.
Cooke has bigger things on his agenda right now with his private-equity backers now almost certain to float the company.
The float team is on a final offshore roadshow with the decision due by month’s end.
The roadshow is selling to the big pension funds in the hope they will make sizeable bets on the company.
If, as expected, the float option is chosen, the property will be included in the deal which will put the enterprise value at around $3.5 billion.
TPG and Carlyle were looking at spinning off the property but it is now considered better to include the total package to try to match the multiples at which market leader Ramsay is selling.
Ramsay is selling at a 2015 price earnings multiple of around 24 times based against a market multiple of around 14 times and on roughly 12 times enterprise value.
The float is timed for the middle of next month.
The regulator knocked back the acquisition of Brunswick Private from Healthe Care on the grounds it would give Cooke a stranglehold on the North Melbourne rehabilitation market.
The deal was part of an asset swap with Healthe Care with Healthscope selling its Gosford, NSW, facility to Healthe in return for the Brunswick hospital.
What worried the ACCC is Healthscope already ran two of the three rehab facilities in Melbourne’s northern suburbs and this deal would give it three out of three.
Some might wonder just how the definitions work because Gosford is now equally dominated by Healthe Care.
But the ACCC is defining the market narrowly looking at just rehab services.
Healthscope is now likely to get cash for the Gosford Hospital but that is subject to talks with Healthe Care.