Private-equity giant bids above and beyond for LifeHealthcare Group

LifeHealthcare Group ASX LHC Pacific Equity Partners takeover bid

After several months of growing speculation, Australian medical devices company LifeHealthcare (ASX: LHC) delighted its shareholders this morning by announcing a takeover bid from a large private-equity firm Pacific Equity Partners (PEP), who have emerged as the front-runners to acquire the rapidly growing healthcare sector distribution company.

LifeHealthcare shares were up 40% on the news after being put in a trading halt yesterday.

LifeHealthcare received a formal bid of $3.75 per share, as part of a binding Scheme Implementation Deed (SID) from private-equity firm Pacific Equity Partners, thereby valuing the company at $211 million – a 46% premium to the shares’ previous close of $2.57 on 2 February.

As one of Australia’s largest private-equity firms, Pacific Equity Partners (PEP) emerged as the front-runner to acquire LifeHealthcare in recent weeks.

However, the purchase constitutes a relatively small chunk of PEP’s overall portfolio of subsidiaries and investments.

Currently, PEP has $2.5 billion of funds under advisement with managed funds in more than 26 operating company investments and more than 90 bolt-on acquisitions.

As part of the deal, LifeHealthcare retains the right to pay its shareholders a dividend in relation to the last 6 months of 2017 although this would offset against the value of PEP’s acquisition if a dividend is paid.

Results milestone ahead

A key milestone coming into view for LifeHealthcare is its first-half FY2018 results scheduled for 20 February 2018, and to be broadcast via live audio webcast.

From the unaudited results already available, LifeHealthcare generated revenue of $67 million in the last six months of 2017, with an underlying EBITDA (earnings before interest, taxes, depreciation and amortisation) of $9.8 million.

According to LifeHealthcare, if PEP completes the acquisition, it is considering declaring a fully franked ‘special dividend’ of $0.18 per share with $0.08 per share in franking credits attached.

PEP’s offer is being resoundingly supported by LifeHealthcare’s Directors who have unanimously recommended for shareholders to support the acquisition offer.

“PEP’s proposal represents a significant premium to LifeHealthcare’s recent share price, is [a] 100% cash consideration and allows for LifeHealthcare to pay a fully franked special dividend should the Board elect to do so. For these reasons, the Board considers PEP’s offer to be very attractive to shareholders,” said Bill Best, Chairman of LifeHealthcare.

Despite the deal having no roadblocks, several outstanding tasks must still be completed for the acquisition to occur. LifeHealthcare and PEP will await approval from the Foreign Investment Review Board (FIRB), as well as Court approval over the coming months in order to formally complete the deal.

Next Steps

With the deal announced, the next step is for an independent expert to prepare a report on whether the acquisition is in the best interests of shareholders and reporting his findings sometime in April 2018.

Final confirmation and for the deal to be implemented is expected to occur sometime in May 2018, with LifeHealthcare stipulating that dates remain indicative and subject to change.

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