The Health Care M&A Monthly: Hospital Deals Remain Robust--
Nine Deals Announced In May Worth $360.4 Million
Hospital merger and acquisition activity remains strong despite questions being raised in several quarters over the ultimate impact of health care reform and ACOs on acute care facilities and their operations. May posted a total of nine deals worth $360.4 million involving 14 hospitals, running the gamut from investor-owned facilities to Catholic providers, from long-term acute care facilities to critical access hospitals. Many of these deals are predicated on the theory that united, hospitals can stand, but divided, they fall.
In May’s largest Hospital deal, rehabilitation services provider HealthSouth (NYSE: HLS) is selling six long-term acute care hospitals (LTACs) with a total of 414 beds to LifeCare Holdings for $120.0 million. The target facilities are located in Las Vegas, Nevada; Houston, Texas; Sarasota, Florida; Pittsburgh, Pennsylvania; Mechanicsburg, Pennsylvania; and Ruston, Louisiana. Two satellite facilities are located in Farmerville and Homer, Louisiana so while only six licenses are involved, they cover a total of eight facilities. In 2010, these LTACs generated $121.7 million in net operating revenue and $17.5 million in adjusted EBITDA. These figures result in a price to revenue multiple of 1.0x, a price to EBITDA multiple of 6.7x and a price per bed of $289,855.
HealthSouth has been selling off noncore assets to concentrate solely on its rehabilitation business. Plano, Texas-based LifeCare is a pure-play LTAC operator with 20 LTACs in nine states. Once this deal closes, it will have a total of 28 LTACs in 10 states.
The deal is to be financed through additional drawings under LifeCare’s senior credit facility and proceeds from the sale of real estate assets associated with five of the hospitals. Accordingly, Health Care REIT (NYSE: HCN) is purchasing the real estate for $80.0 million. The annual lease rate is to be the greater of the five-year Treasury rate plus 5% or 9.25%. At a 9.25% lease rate, this implies a satisfactory 2.36x coverage. This increases HCN’s LTAC portfolio to 22 facilities, so it’s a win-win for both LifeCare and HCN (and good for HealthSouth, too).
The next two largest deals involve sales of MedCath (NASDAQ: MDTH) facilities prompted by the recent legal constraints placed on the expansion of physician-owned facilities. In the first deal, MDTH is selling Heart Hospital of New Mexico, a 55-bed acute care hospital specializing in cardiology, to Ardent Health Service’s Lovelace Health System in Albuquerque for $119.0 million, or 1.47x revenue and 7.7x EBITDA. Navigant Capital Advisors provided MDTH with financial advice...Want to read more? Click here for a free trial to The Health Care M&A Monthly and download the current issue today