After all these years someone finally snags Age Care Services.
But with the UBS-advised Japara on the auction block for more than a year, and with many of its peers also up for sale, it is a buyers' market.
If it comes off, it would be the first Australian transaction for Blackstone, which is yet to strike a deal here despite Hong Kong-based senior managing director Ben Jenkins' long and arduous efforts sifting through a range of businesses.
The critical sticking point has been price. It is understood Japara is looking for between $415m and $425m.
But it is believed Blackstone about three months ago indicated a willingness to pay $405m and is sticking to this.
Japara operates 35 aged-care facilities and five retirement villages in Victoria, South Australia, Tasmania and NSW, with about 2800 beds. It generates earnings of between $45m and $50m.
While a number of factors -- including a federal government productivity commission report that could potentially curb earnings through potential caps on bonds and co-contribution from residents -- are weighing on the sector, the fundamentals of an ageing demographic continue to make aged-care an attractive proposition for the right buyer at the right price.
In this instance, a number of moving parts, including valuation of property and accommodation bonds -- effectively an interest-free, unsecured loan a new resident is required to pay when he or she enters into aged care -- have made agreements on price particularly complicated. That aged-care operators are capital-hungry businesses is another factor to consider.
(It is worth noting that private hospital operator Healthscope's attempt at taking over Japara's aged-care rival Arcare fell over in part because of discrepancies in accommodation bond valuations. The failure of that deal eventually triggered a takeover of Healthscope itself, with Blackstone missing out to private equity rivals TPG and The Carlyle Group in the $2.7 billion race.)
The other issue for the Oaktower Partnership-advised Blackstone is financing. The private equity group has lined up ANZ, Westpac, National Australia Bank, Macquarie, Credit Agricole and HSBC as lenders, but there are still issues to be sorted out before the banks will tick off on a $250m debt facility.
Property and bond valuations and how that will affect the way covenants are set are at the heart of these discussions.
