The Ramsay Health Care Limited (ASX: RHC) share price is under the spotlight after revealing a UK acquisition worth $1.4 billion.
Ramsay is one of the world’s biggest private hospital operators with a large presence in Australia, the UK and mainland Europe.
Ramsay spends $1.4 billion on Elysium Healthcare
The ASX healthcare business is buying UK-based mental health provider Elysium Healthcare for an enterprise value of £775 million, or $1.4 billion in Australian dollar terms.
This acquisition is going to funded through Ramsay’s existing debt facilities.
What is Elysium Healthcare?
Elysium Healthcare is a leading operator of long-term medium and low secure hospitals and complex care homes for individuals with mental health conditions and has a strong partnership with the National Health Service (NHS).
Ramsay believes it has growth potential by fully utilising recently developed capacity, and delivering on its development pipeline, combined with potential bolt-on opportunities.
The acquisition values the business at 13.5 times the EBITDA (EBITDA explained) and is expected to add in the mid-single digits to profit/earnings per share (EPS).
Why does Ramsay like this business?
Management outlined that it’s a unique opportunity to enter the growing UK mental health hospital market at scale with opportunities for both organic growth and acquisitions.
Another advantage is that it expands its healthcare services in the UK and strengthens relationships with key stakeholders like the NHS.
It gives Ramsay the opportunity to offer more integrated care pathways for patients.
Ramsay said that mental health is a growth market, with favourable demographics including awareness and improving diagnostics. It’s reportedly a £15 billion market.
It also sees collaboration potential between mental heath and acute care propositions between its businesses in Australia, France, Sweden and the UK.
It’s expected to deliver synergies of at least £5 million per year.
My thoughts on this deal and the Ramsay share price
This seems like a good expansion by Ramsay, though it’s certainly paying up for it. The mental health space is a good area to be involved.
The market doesn’t seem impressed, with the Ramsay share price currently down.
The Ramsay share price is almost exactly where it was five years ago. The private health has gone through a lot in recent years, including COVID-19.
There is probably a recovery story as more private operations return, but COVID-19 has been a big negative for multiple reasons and I’m not sure if Ramsay has as much growth potential as it did before. I’m looking at other ASX growth shares for ideas.
