Spire/Ramsay: a welcome discharge from the critical care ward

Australia’s Ramsay Health Care has delivered a shot in the arm to Spire Healthcare. Its all-cash bid values the group at £2bn. The UK private hospital operator has lurched from crisis to crisis since a bid from its largest shareholder Mediclinic failed in 2017.

Ramsay’s offer carries a decent premium. But with Spire shares still in recovery from last year’s shutdown, the offer smacks of opportunism.

Spire had a decent run in the years following its 2014 initial public offering. The wheels began to come off in 2017 as NHS cutbacks in private treatments curbed earnings. Those woes were compounded by the prison conviction of rogue surgeon Ian Paterson, who worked from Spire’s hospitals. Mediclinic, sniffing opportunity, launched its abortive cash and stock bid, which valued Spire shares at 316 pence apiece.

Ramsay’s 240 pence per share offer is at a 36 per cent premium to Spire’s share price over the past three months. Using consensus estimates for 2022 gives an enterprise value multiple of 9.6 times expected ebitda. That is well above the levels Spire shares traded at even during pre-crisis lulls of 2018 and 2019 but below Ramsay’s own 11 times multiple.

Since being appointed to the helm in 2017, Justin Ash has sought to ensure there can be no repeat of the lapses in care that allowed Paterson to abuse patients. Quality of care metrics have improved. So too have financial prospects, with a backlog of elective surgeries from last year set to boost activity. Analysts expect ebitda margins to hit 20 per cent in 2023, levels not seen for a decade.

Ramsay is unlikely to face competition to buy Spire and Mediclinic has committed to tendering its 30 per cent holding. That is lucky for Ramsay, as it would struggle to pay more. Expected cost savings of £26m annually already fall short of the current premium when taxed and capitalised.

Even with its improving prospects, shareholders are still subject to a market that is susceptible to all manner of risks. Better to take the medicine on the table, even if the sugar coating is a little thin this time round.