Rothschild President Marshall Baillieu says he expects strong activity and strong capital flows in healthcare over the next 12 months.
Hollamby says that despite the disruption to health care caused by COVID-19, demand for the sector is relatively certain and severe shocks or radical changes are unlikely.
He says the multibillion-dollar funds managed by KKR need to do M&And big, because it’s the most effective way to use their capital.
However, Hollamby warns that Ramsay Health Care is a complex company that would require particularly detailed due diligence in a number of different countries.
“If I look at it, the devil is in the details of this society,” he says. “I mean, the idea of going to reduce the cost of a hospital group isn’t appropriate.
“A large part of the hospital group’s costs are personnel costs. I don’t know you can take a lot of people out.
“To be precise, I don’t think the group was mismanaged.” It can only be a question of the fact that KKR has lower capital costs and says: “You know, we try to use the money of our investors and we think that our investors will be satisfied with the return we can achieve.”
“Maybe they want to cut the group because it’s quite complex and international, and they think investors don’t understand it well. I don’t know what their thesis is. “
Transport from public to private
Hollamby says the feature of the healthcare sector over the past few years has been the one-way operation of companies that have moved from public markets to private ownership.
“We have had several IPOs of healthcare companies returning to the market, but there is often another private investment company queuing up to leave sooner,” he says.
“And if that’s not the case, it’s what it’s called basic funds today or basic plus funds, which is low-return private capital that holds assets longer.”
Rothschild’s medical banker in Australia, Marc Rubinstein, says Australia has taken up the global issue of private equity funds that transfer ownership of existing medical assets.
The best example of this was the Intellihub agreement, which includes Pacific Equity Partners and Brookfield.
“We expect to see one or two more of these healthcare stores in the next 12 to 18 months,” says Rubinstein.
“I think valuations … are only supported by the demand wall and not just private capital. I think it’s such a strong sector that there will always be … high demand from public market investors, private equity and major investors. “
However, Rubinstein says he expects the growth rate in healthcare to fall from 10 percent to 15 percent annually prevalent before COVID-19 to about 5 percent.
“I think what people see is that they are very defensive, so the fact that they are defensive means that they achieve strong valuations compared to other companies that can grow at a similar pace but are much more volatile. ,” he says.
Hollamby says Australia is one of several countries to experience a “narrow market premium” due to a combination of high domestic pension savings and rising equity flows into equities.
“Australia and Sweden are rich countries with very significant pension fund savings, which are forced to invest in national stocks due to currency mismatch when investing offshore,” he says.
“When building their ideal portfolio, they usually want to put more into healthcare because it’s in this long-term growth block.
“But if we look at the Australian stock exchanges, we will see that health care is massively under-represented as a piece of cake. This means that Australian pension investors as a cohort tend to overcharge local stocks.
“Interesting that while Ramsay and Sonic.” [Healthcare] are excellent businesses, historically trading for one or often two EBITDA turnovers higher than their global [peers] in Europe or North America. “
Hollamby says you could argue that this is due to a lack of stockpiles that local investors can buy. But the fact is that they have first-class management and good records of long-term growth.
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