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Healthcare Locums plc - Acquisition of Healthcare Australia Holdings Pty Ltd

Healthcare Locums plc

Acquisition of Healthcare Australia Holdings Pty Ltd

The Board of Healthcare Locums plc ("HCL" or "the Company"), announces that the Company entered into an agreement on 26 November 2010 to acquire the entire issued and to be issued share capital of Healthcare Australia Holdings Pty Ltd ("HCA") from certain CHAMP Private Equity funds and a small number of private individuals, for a total consideration of AU$122.5m (approximately 75.2m) payable in cash on completion. The agreement is subject to certain conditions precedent, including finalisation of the debt financing for the acquisition. The consideration payable will be satisfied from new debt facilities and HCA is being acquired on a free of cash and free of debt basis.

The Board has recently stated its intention to pursue international acquisitions which will generate additional revenue outside of the UK. Currently HCL derives less than 50 per cent of its gross margin for the overall business from the NHS. The completion of this acquisition will broaden the HCL customer base outside of the UK and diversify the client base even further.

HCA was established in 2004 and is a leading provider of nursing agency staff to public and private health institutions in Australia. HCA has grown rapidly by acquisition in recent years and is today the largest national nursing agency in Australia, with a database of over 6,500 active nurses, which represents over 30% of the total nursing agency staff in Australia. The nursing agency market in Australia is highly fragmented and is estimated to be around AU$1bn in size.

The HCA audited accounts for the year ending 30 June 2010 show group turnover of AU$223.6m (2009: AU$265.9m) and profit before tax of AU$1.7m (2009: AU$0.9m). The EBITDA adjusted for non-recurring items was AU$17.2m (2009: AU$20.0m). Therefore the acquisition price represents a multiple of 7.1x adjusted historic EBITDA. The main reason behind the fall in turnover and EBITDA in the 2010 financial year was the decline in billable nursing agency hours due to the shortage of available agency nurses. As at 30 June 2010, HCA had net assets of AU$36.4m (2009: AU$35.1m). HCA's principal customers include the State Departments of Health, Healthscope Limited, and the Commonwealth of Australia as represented by the Departments of Defence, Families and Communities and Veteran Affairs.

The HCA business comprises two principal parts, being Health Workforce Solutions ("HWS"), the provider of nursing agency staff which accounts for approximately 85% of HCA's revenue, and Homecare ("HC"), a provider of professional nursing, health and support services to individuals in their homes, which accounts for approximately 15% of HCA's revenue. The demand for HC's services is being driven by the Australian government which is looking to increase the level of homecare funding on the basis that it is more cost effective than using medical facilities and individuals prefer to be cared for in their own homes. 86% of HC's revenue is derived from government funded sources, compared to only 50% of HWS revenue.

There are many similarities between the UK and Australian healthcare markets. Demand for HWS's nursing agency staff is being driven by the ageing population in Australia, health providers looking to reduce operating costs by using an optimal mix of permanent and agency staff, and the demand by nurses for greater work flexibility. It has also been estimated that 40% of the nursing workforce in Australia will retire in the next 10 years (source: Australian Nursing Federation website).

The largest Australian urban centers in New South Wales, Victoria and Queensland, account for over 75% of the nursing agency population in Australia. HCA has an opportunity to expand significantly particularly in New South Wales and Queensland. The Board considers that HCA has a strong management team which will remain with the business following its acquisition by HCL. The Board of HCL believes that there are substantial cost savings that can be achieved by combining HCL and HCA, and that the majority of these benefits will accrue to the enlarged group in the first twelve months following the completion of the acquisition. Therefore, the Directors believe the acquisition will be earnings enhancing in 2011.

The Board considers that this acquisition will significantly enhance HCL's international capability. HCL has been operating in the Australian doctors and social care markets since April 2009 and substantial synergy benefits should arise from this acquisition. Similarly to the UK nursing market, the demand for nursing staff in Australia exceeds HCA's ability to supply. Currently HCL has over 2,000 nurses on its international data base that have indicated that they wish to work in Australia. Following a recent marketing campaign by the newly acquired UK nursing agencies (Redwood Health and Orion Locums), over 700 nurses have applied for posts in Australia. This cross selling opportunity between UK and Australian healthcare workers has benefitted HCL over the last few years, and the Board believes that this acquisition will significantly accelerate opportunities for HCL in both markets.

HCL is currently finalising the terms of new debt facilities to fund the full consideration of the acquisition of HCA.

The Board of HCL anticipates that the financing of the acquisition will be completed in December 2010 and a further announcement will be made at that time.

Commenting on the acquisition, Kate Bleasdale, Executive Vice Chairman, said:

"The Board is committed to strategic acquisitions which will increase HCL's international presence in the global healthcare staffing marketplace. This acquisition is expected to create one of the largest specialist international health and social care staffing agencies in the world. Importantly it will enable HCL to further reduce its reliance on UK public sector spending. With over 4 million vacancies for healthcare workers worldwide, HCL is excited by the opportunities which will be available to such a significant international healthcare staffing group."


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