Why Healthscope is Selling Their Pathology Business

One of Australia’s biggest listed healthcare companies is selling off a big chunk of their business.

Healthscope [ASX:HSO] announced this morning that it will sell its Australian pathology operations to Crescent Capital Partners.

The sale price is $105 million. For that, Crescent will get 550 collection centres and 31 pathology labs, located in New South Wales, Victoria, South Australia, and the Northern Territory. Healthscope will get $92.5 million cash up front when the deal is completed, which should be by the end of July. They’ll also get a promissory note for $12.5 million — kind of like an IOU, but with a repayment timeline and other conditions.

Why are Healthscope selling off?

Healthscope CEO Robert Cooke explained why Healthscope are getting rid of their collection centres and labs. He said ‘Our Australian Pathology operations are non-core, have been operating in challenging market conditions for a number of years and their underlying earnings contribution to the Group is limited. The sale will allow Healthscope to focus management time and resources on growing our core hospitals businesses where we have a strong pipeline of growth opportunities.

In other words, pathology is taking up a lot of time and resources, but it’s not making much money. So they’re going to get rid of it and focus on hospitals instead. This makes a lot of sense when you look at Healthscope’s last report — their half yearly report from the end of February. According to their records, Pathology Australia made up just under 15% of their revenue. And just a tiny 0.03% of their profits.

What do we know about Crescent?

Crescent Capital Partners is a Sydney based private equity firm. They invest in businesses that are worth between $50 million and $300 million. This makes the Healthscope pathology acquisition one of their smaller ones.

They have a broad portfolio with a number of other healthcare businesses. For example, they founded National Dental Care in 2013. National Dental Care now has dozens of practices in its network. Then there’s the Southern Sun Skin Cancer Clinics, with several locations across Queensland and New South Wales. Presumably, those six skin clinics from Healthscope will join that network.

Crescent also recently exited their investments in National Hearing Care and LifeHealthcare.

How did the market react?

Healthscope stocks opened up this morning. At the time of writing, they were trading up by 1.51% and rising.

Source: Google Finance
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By the way, if you’re looking for a health care stock to add to your portfolio, check out Sam Volkering’s report ‘Three Aussie Small-Cap Stocks for Every Portfolio’. In this report, Sam introduces an Aussie medical services company that’s at the cutting edge of diagnostic technology. Think MRI, Doppler ultrasound, CT scans and more. Sam believes this company has the potential to replicate the impressive growth rate it’s seen over the past five years. Click here to find out how to get your free copy of this report.

Eva Mellors,
Contributor, Money Morning

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