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Healius talks with 4Cyte revealed as deal activity looms in pathology sector
Australia's second-largest pathology provider held secret talks to merge with 4Cyte before the smaller rival sold its stake to investment heavyweight Tanarra Capital.
Healius is understood to have held talks over a deal with its smaller competitor 4Cyte Pathology, that until recently owned a sizeable stake in the Australian listed pathology provider.
4Cyte Pathology is owned by James Bateman, the son of the late Ed Bateman, who founded Primary Health Care, which later changed its name to Healius. James Bateman was also a former Primary Health Care executive.
DataRoom understands that Healius held talks with 4Cyte about a deal where the two companies would combine to achieve cost benefits.
But Healius walked away because the earnings were not at a level where it would be a beneficial deal, sources said.
However, DataRoom can reveal that 4Cyte had owned just under 5 per cent of Healius until it recently sold its stake to John Wylie’s Tanarra Capital.
Mr Wylie now owns 19.8 per cent in Healius, telling sources in the market he had doubled his interest in the business because of his view that it represented good value.
But some believe his decision to make a bigger bet on the business could be a further sign that more corporate activity is afoot involving Healius, after a number of private equity firms have considered buying the company before walking away.
Despite the pathology industry struggling to remain profitable with rising healthcare costs, sources believe consolidation among players will be inevitable for groups to achieve sustainable earnings growth. However, the challenge remains gaining clearance for the Australian Competition and Consumer Commission.
Rival Australian Clinical Labs made a play to merge its business with Healius, but it was rebuffed, and sources at the time said ACCC clearance would be a challenge.
But ACCC clearance could also be difficult when it comes to combining with 4Cyte, say industry analysts.
4Cyte began in 2018 and has since grown into a multi-state network with clinics in Queensland, NSW, Victoria and South Australia.
DataRoom reported last month that Tanarra had increased its stake to 19.8 per cent from 11.97 per cent.
Market participants believe Tanarra’s acquisition of more shares gives Mr Wylie greater influence over the company’s future, including whether it accepts a buyout or merger offer.
Many in the industry believe that aside from the competition regulatory hurdles, the obvious deal for Healius is a merger with ACL so they can capitalise on synergies.
Some believe boardroom politics have stood in the way until now.
Mr Wylie is known to have played matchmaker many times before, such as with Boral, and has made attempts to find a solution for Lendlease, another of his investments.
Before being a fund manager, he was a high-profile investment banker in Australia running Lazard’s Australian outpost.
Healius shares closed at 80c with its market value at $579m, down 43 per cent in the past year.
Healius reported a $151m loss for the year to June 30 compared to a $646m loss in the previous corresponding year.
Last year, Healius sold its diagnostic imaging business to Affinity Equity Partners for $965m to secure funds, leaving it as a pure play pathology operator.
t is the second largest pathology player behind Sonic Healthcare, with 25 per cent market share, and ACL the third largest.
Australia's second-largest pathology provider held secret talks to merge with 4Cyte before the smaller rival sold its stake to investment heavyweight Tanarra Capital.
Healius is understood to have held talks over a deal with its smaller competitor 4Cyte Pathology, that until recently owned a sizeable stake in the Australian listed pathology provider.
4Cyte Pathology is owned by James Bateman, the son of the late Ed Bateman, who founded Primary Health Care, which later changed its name to Healius. James Bateman was also a former Primary Health Care executive.
DataRoom understands that Healius held talks with 4Cyte about a deal where the two companies would combine to achieve cost benefits.
But Healius walked away because the earnings were not at a level where it would be a beneficial deal, sources said.
However, DataRoom can reveal that 4Cyte had owned just under 5 per cent of Healius until it recently sold its stake to John Wylie’s Tanarra Capital.
Mr Wylie now owns 19.8 per cent in Healius, telling sources in the market he had doubled his interest in the business because of his view that it represented good value.
But some believe his decision to make a bigger bet on the business could be a further sign that more corporate activity is afoot involving Healius, after a number of private equity firms have considered buying the company before walking away.
Despite the pathology industry struggling to remain profitable with rising healthcare costs, sources believe consolidation among players will be inevitable for groups to achieve sustainable earnings growth. However, the challenge remains gaining clearance for the Australian Competition and Consumer Commission.
Rival Australian Clinical Labs made a play to merge its business with Healius, but it was rebuffed, and sources at the time said ACCC clearance would be a challenge.
But ACCC clearance could also be difficult when it comes to combining with 4Cyte, say industry analysts.
4Cyte began in 2018 and has since grown into a multi-state network with clinics in Queensland, NSW, Victoria and South Australia.
DataRoom reported last month that Tanarra had increased its stake to 19.8 per cent from 11.97 per cent.
Market participants believe Tanarra’s acquisition of more shares gives Mr Wylie greater influence over the company’s future, including whether it accepts a buyout or merger offer.
Many in the industry believe that aside from the competition regulatory hurdles, the obvious deal for Healius is a merger with ACL so they can capitalise on synergies.
Some believe boardroom politics have stood in the way until now.
Mr Wylie is known to have played matchmaker many times before, such as with Boral, and has made attempts to find a solution for Lendlease, another of his investments.
Before being a fund manager, he was a high-profile investment banker in Australia running Lazard’s Australian outpost.
Healius shares closed at 80c with its market value at $579m, down 43 per cent in the past year.
Healius reported a $151m loss for the year to June 30 compared to a $646m loss in the previous corresponding year.
Last year, Healius sold its diagnostic imaging business to Affinity Equity Partners for $965m to secure funds, leaving it as a pure play pathology operator.
t is the second largest pathology player behind Sonic Healthcare, with 25 per cent market share, and ACL the third largest.