Quadrant Private Equity sells out of Estia as listed private care operator share prices hit

In October 2013 Sydney-based private equity firm Quadrant purchased 10 Melbourne based Estia Health facilities and 1,100 beds for $175 million. They then build it up to 3,900 beds across 39 facilities before floating it at a value of $1 billion 14 months later in December 2014.

Quadrant has been selling down its shareholding with the final 17% (approx.) sold last week for $5.56 per share, netting approximately $172 million. The timing was perfect. Since then the shares have dropped 7% to $5.16. Now hedge fund VGI Partners has come out saying it is ‘shorting’ the stock, in part driving down its value.

At the same time Bank of America Merrill Lynch (BAML) came out with an investor advice that Estia, Japara and Regis Aged Care will all suffer zero earnings growth around 2018-20. BAML had analysed the projected impact of the changed ACFI funding announced in the May budget. All share prices were hit by up to 9%.

Since then UBS and CLSA have come out saying the reverse - now is the time to buy – because demand will continue to exceed supply of aged care beds and additional revenue will be found beyond government subsidies. With up to 8,000 new beds required every year and less than half that being built, this makes sense.

Getting back to Quadrant, it’s Estia strategy was led by Marcus Darville. He also achieved significant growth – and profit – in NZ when he bought Somerset retirement villages for around $60 million and sold four years later in 2014 for approximately $243M.