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Healthcare Locums plc Complete the Acquisition of Healthcare Australia Holdings Pty Ltd

Healthcare Locums plc
("HCL" or "the Company")

Completion of the Acquisition of
Healthcare Australia Holdings Pty Ltd

Further to the announcement made by the Company on 26 November 2010, the Board of HCL is pleased to announce that the Company has completed the acquisition of the entire issued and to be issued share capital of Healthcare Australia Holdings Pty Ltd ("HCA").

The acquisition, from certain CHAMP Private Equity funds and a small number of private individuals, was completed for a total consideration of AU$122.5m (approximately 77.8m) and has been satisfied in cash. The acquisition has been funded by way of new debt financing, comprised of a term loan and a mezzanine facility. HCA is being acquired on a free of cash and free of debt basis.

The term loan has been provided from both National Australia Bank and Commonwealth Bank Australia who are jointly providing an aggregate loan of AU$69.8m (approximately 44.33m) together with an additional 54.28m with a four year term. Interest on the loan starts at 3.65% over the London Interbank Offered Rate ("LIBOR"), reducing to 2.45% over LIBOR subject to certain conditions being met.

A 30 million mezzanine facility is being provided by Ares Capital Europe with a five year term. Interest on the mezzanine facility is payable in cash at 7.5% above LIBOR plus an additional interest payment of 2.5% at the end of the term. In addition Ares Capital Europe has been granted warrants over 2,493,453 shares in HCL, representing 2.2% of HCL's issued share capital, exercisable at 0.10 per share in 5 years time or earlier, subject to certain exercise events (the "Warrants"). Further terms of the Warrants are set out below. Lloyds Bank remain as transaction bankers to the UK business.

The acquisition follows the Board's recent statements regarding its intention to pursue international acquisitions which will generate additional revenue outside of the UK. The completion of this acquisition significantly broadens HCL's international operations, and post acquisition HCL expects to derive approximately 30% of its gross margin from its Australian division.

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.

HCA was established in 2004 and is a leading provider of nursing agency staff to public and private health institutions in Australia, approximately 40% of healthcare in Australia is provided by the private sector. 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. Approximately 40% of nurses in Australia are due to retire in the next 10 years, so there is significant and increasing demand for the use of agency staff, at the same time there is a reduction in nurses available to work. In the UK approximately 200,000 nurses - a third of registered nurses in the UK are due to retire in the next 10 years, contributing further to the global shortages of healthcare staff.

The Board considers that HCA has a strong operational management team which will remain with the business following completion of the acquisition. The Board of HCA will be further strengthened. HCL believes that substantial cost savings can be achieved through the combination of HCL and HCA, and that the majority of these benefits will accrue to the enlarged group in the first twelve months following completion. It is estimated that approximately 4.7m of synergy savings will be realised in the first 12 months following the acquisition of HCA. These savings will be made across the HCL Group, and relate largely to implementing the HCL business model in HCA. As a consequence the Directors believe the acquisition will be earnings enhancing in 2011.

Importantly the acquisition of HCA significantly enhances HCL's international capability. HCL has been operating in the Australian doctors and social care markets since April 2009. Similar to the UK nursing market, the demand for nursing staff in Australia exceeds HCA's present ability to supply. Currently HCL has over 2,000 nurses on its international data base who 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 1,200 nurses have expressed interest in applying for posts in Australia. Following the acquisition of Last Minute Locums ("LML", which is HCL's Australian doctors division) a similar marketing campaign has led to over 1,000 doctors expressing an interest in working in Australia. It is the Board's intention to expand LML, and our Australian Social Care divisions throughout the HCA network and at the same time to develop an Allied Health Professional division within HCA. This will create a business that mirrors the HCL's UK operations.

The cross selling opportunity between UK and Australian health and social care workers has benefitted HCL over recent years, and the Board believes that the HCA acquisition will significantly accelerate opportunities in both markets. With over four million vacancies for healthcare workers worldwide this acquisition makes HCL one of the largest international health and social care agencies in the world and is therefore well placed to tap into these global opportunities. Currently HCL recruits from 65 countries worldwide, and recruits into 13 countries worldwide.

The Company will be issuing a trading update at the end of January, 2011. Following the Autumn spending review demand for staff has been steadily increasing, and in particular the doctors division, where a 30% increase in demand over the last few weeks compared with requests made in the previous 12 weeks is likely to have a significant positive effect on actual placements over the next few months.

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

"We are delighted to have completed this important strategic acquisition which significantly enhances HCL's presence in the global healthcare staffing marketplace. It creates one of the largest specialist international health and social care staffing agencies in the world and the HCA acquisition is expected to be earnings enhancing during 2011. With more than four million vacancies for healthcare workers worldwide, HCL is well placed to benefit from the opportunities available to such a large international healthcare staffing group."

Further terms of the Warrants: The warrant instrument includes an anti-dilution provision which entitles the warrantholder to maintain its 2.2% holding in the issued share capital to the extent that ordinary shares are issued at below 0.85. In the event that further shares are issued at a price above 0.85, warrantholders will be issued with additional Warrants representing 1.1 per cent. of the new ordinary shares to be issued. The warrantholders are entitled to appoint a director to the Board in certain circumstances. The Warrants are exercisable on the earlier of 5 years and certain other events, including, a sale, a change of control, a refinancing, default under the finance facilities and an issue of shares which exceeds 7.5% of HCL's issued share capital.

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