Health Care Deal News: Spotlight on Hospitals- January 2012

Cone Health, a five-hospital system based in Greensboro, North Carolina, is acquiring Alamance Regional Medical Center, a 218-bed acute care hospital in Burlington, North Carolina, for about $200.0 million. Under terms of the transaction, Cone Health will make $150.0 million in capital improvements and spend at least $50.0 million to endow a community foundation. The deal is valued at 0.97x 2009 revenue and 6.0x EBITDA. As part of a larger system, Alamance will be able to meet the challenges of greater regulation and tighter finances.

Huntsville Hospital, the largest not-for-profit hospital system in Alabama, is acquiring Parkway Medical Center, a 109-bed acute care hospital, from Capella Healthcare for about $37.8 million. Parkway Medical is located in Decatur, Alabama. Under terms of the deal, Huntsville is paying $17.5 million and assuming Parkway Medical’s long-term debt, estimated at about $20.3 million. At an effective purchase price of $37.8 million, the deal is valued at 0.83x revenue. Since Alabama has one of the toughest Medicare reimbursement environments in the country, Parkway Medical needs to join forces with a larger, experienced system. The buyer is already in the Decatur market; it affiliated with another hospital there for three years. The current deal was effective January 1, 2012.

Capella Healthcare continues to reshuffle its hospital portfolio in other markets. In a separate deal, Saint Thomas Health and Capella have embarked on an innovative equity partnership to form a hospital system in Middle Tennessee and Southern Kentucky. The partnership will result in the joint ownership and operation of Capella’s four hospitals in Middle Tennessee; these four are to operate as part of the Saint Thomas Health Network, which will also hold an equity interest. Saint Thomas Health is to serve as the tertiary care partner. Under terms of the agreement, Capella is to be the managing member and  majority partner in the venture.

In northern Minnesota, the City of Virginia is leasing Virginia Regional Medical Center, a 164-bed acute care facility, to Essentia Health, a hospital system based in Duluth, Minnesota and operating in four states. Under terms of the 20-year lease, Essentia is making $17.0 million in capital commitments and assuming $10.0 million of Virginia Regional’s long-term debt. Taking $27.0 million as the effective purchase price, the price to revenue multiple is 0.57x. This acquisition will enlarge the buyer’s facility network in northern Minnesota. It is hoped that access to Essentia’s greater resources will help to stem the loss of revenue and drop in admissions at Virginia Regional. Essentia already operates a clinic in Virginia, so this deal will allow for a degree of vertical integration locally.

Underwood-Memorial Hospital, a 305-bed acute care facility in Woodbury, New Jersey, is merging with South Jersey Healthcare (SJH), a four-hospital system based in Bridgeton. This transaction enlarges SJH’s facility network in southern New Jersey. A definitive agreement was signed on January 5, 2012...Want to read more? Click here for a free trial to The Health Care M&A Monthly and download the current issue today