Adelaide private hospital St Andrew’s has plenty of qualities to make it a takeover target for rival groups Healthscope and Ramsay Health Care – no debt, growing revenues and high quality care – but its unusual corporate structure means nobody has the power to hand over the keys.
It’s the private hospital that can’t be sold, but that has not held it back from keeping pace with competitors in one of the country’s hottest sectors.
St Andrew’s Hospital, which has annual revenue of $75 million, is in expansion mode because of rising demand as the population ages. This trend is well known to investors in Ramsay and Healthscope, who have pushed the value of the companies shares up 43 and 42 per cent respectively since July last year when Healthscope rejoined the market in a $3.6 billion listing. The private hospital stocks are popular among those on the hunt for steady, defensive investments – especially as commodities are on the nose as iron and oil prices tumble beyond five-year lows.
Chief executive Stephen Walker says the hospital is about to embark on a $40 million development to add more operating theatres, to keep up with the strong demand for theatre space from Adelaide’s top surgeons, who are already enthused by the chance to use a new $3.3 million da Vinci robotic surgery machine, one of only three in Australia.
“They’re like a kid with a new toy,” Mr Walker says.
The entity has strong relationships with the major private health insurers that are the financial lifeblood of private hospitals, with patients insured through BUPA comprising 60 per cent of annual revenues, and those insured through newly-listed Medibank Private about 15 per cent. About 25,000 patients attend the 201-bed hospital each year.
Mr Walker says he expects Medibank Private to be even more hard-headed in its negotiations now that it is listed on the ASX. “I suspect they will be a bit tougher,” he says.
As the country’s largest independent hospital, it has been the subject of overtures from listed players. Healthscope, in particular, has eyed St Andrew’s previously, but the answer has been a polite no.
St Andrew’s chairman Ken Williams, who is also on the board of oil and gas company AWE and chairman of ASX-listed Havilah Resources, says St Andrew’s is deeply conservative with its balance sheet, and its business is performing solidly.
“We see no compelling to reason to change,” Mr Williams says.
But the hospital also has no ability to change. Mr Williams oversees a board of 12 people who control St Andrew’s’ destiny, but under the unique constitution they do not have the power to sell the business.
It was established in 1936 when it was owned by the head of nursing, Janet Hay, and in 1947 was acquired by the Presbyterian Church of South Australia. Through the formation of the Uniting Church via a merger with the Methodist Church and others in 1977, the hospital’s constitution was altered and all power vested into the board of governors instead of the church. In practical terms St Andrew’s is now a type of perpetual trust and can’t be sold because no one will be able to receive the money, and it is compelled to keep on offering hospital services.
Mr Williams says St Andrew’s is in a “sweet spot” now, where it is large enough to derive the benefits of having a strong national reputation and being at the forefront of technology, without the need to chase economies of scale, although it does keep a particularly close eye on the rising costs of consumable items used in surgery.