Company Description

Affinity Health was Australia’s largest private hospital operator. The group comprised a network of 48 hospitals throughout Australia and three in Indonesia and treated approximately 24% of all private hospital patients in Australia.

Investment Rationale

Major attractions of the opportunity were:

  • Excellent management.
  • Good market growth.
  • Market leading position, historically able to benefit from economies of scale.
  • Well invested with stable cash flows and strong asset backing.
  • Potential for immediate profit improvement and longer term growth.
  • A number of business specific issues resulting in a perceived attractive price from a committed vendor.
  • Exit opportunities were good.

Ironbridge Value Added

The key value added from the Ironbridge team was as follows:

  • Ironbridge enabled the business to issue only the second retail bond in Australia on very favourable terms, using the experience gained from Repco (the first retail bond issued in Australia). The disciplines this gave the management team in public reporting experience were invaluable during the IPO process.
  • Ironbridge strengthened the local hospital management structure by directly incentivising hospital directors and directors of nursing with equity and by giving them responsibility for their own working capital management. As a consequence significant cash was generated and hospital margins continued to be improved.
  • Ironbridge had regular meetings with senior doctor groups and introduced research grants for particular forms of hospital treatment. This fostered a gradual increase in Doctor sentiment towards Affinity, resulting in greater cooperation with rostering, patient discharge and recuperation and theatre assistance.
  • Ironbridge drove improvements in the handling of medical malpractice incidents. This included ensuring correct reporting, claims management, apportionment of blame, etc. The result was the build up of a significant provision at exit and offers of insurance cover from a market that had previously shunned the business under prior ownership, hence delivering no issues for a future owner.
  • Overall, by supporting existing management strategies, cleaning up the portfolio and driving improvement in the area of medical malpractice Ironbridge removed all of the issues that had driven the value of Affinity down when acquired.

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