In the February 2007
issue:
Medical Devices Set Strong Pace - Sector Leads Robust Consolidation In
2007
The medical device sector posted strong numbers in January’s M&A market.
Particularly noteworthy is the presence of private equity firms as buyers.
...
New Year’s Hospital M&A - Hospitals Realign
In The New York City Metropolitan Area
The New York City metropolitan hospital market is realigning into smaller,
regionally focused networks. Roman Catholic facilities are figuring
prominently in this transformation.
...
Looking Ahead At Health Care M&A
Turner Bredrup of Harris Williams spoke with us about trends to watch for in
the 2007 health care M&A market.
...
In The Departments
Services
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Health Care Services
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Deal Summaries
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Additional Transactions
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Transaction Updates
Technology
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Health Care Technology
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Deal Summaries
Additional Transactions
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Transaction Updates
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Articles Archive
Companies Mentioned in this issue:
February 2007
A
Abbott p1
Actavis hf p16
Advanced Medical Optics p9
Affiliated Computer Services p14
Albion p14
Amgen p10
Amphora Discovery Corporation p10
Angelo, Gordon & Co. p4
AOL p15
Apax Partners p1
Apotex p15
Arcadia Resources p9
Argenta Discovery p15
AstraZeneca plc p15
Aventis p15
B
Bank of America p10
Barr Pharmaceuticals p16
Bayonne Medical Center p2
Beckloff Associates p9
Blackstone Group p9
Blue Acquisition Corp. p16
BNP Paribas p15
Bon Secours Cottage Health Services p2
Bon Secours Health Care System p2
Bridge Regional Health System p2
Bristol-Myers Squibb p15
Brooklyn Queens Health Care System p2
C
Cambridge Antibody Technology p15
Cardinal Health p9
Caremark Rx p8
Caritas Health Care p2
CCMP Capital Advisors LLC p16
Cell Therapeutics p14
Cinven p16
Citigroup Corporate and Investment Banking p9
Clayton, Dubilier & Rice p9
Comprehensive Care Corp. p4
CRT Capital Group p3
CVS Corp. p8
Cytokinetics p10
D
DOR BioPharma p14
DOV Pharmaceutical p10
E
Eli Lilly & Co. p8
Eureka Capital Partners p4
Express Scripts p8
F
Formation Capital p8
Fresenius Medical Care p7
G
GE Healthcare p1
Genentech p10
General Hospital Center p2
Genesis HealthCare Corp. p8
Goldman Sachs p4
Good Sheperd Rehabilitation Network p1
Graduate Hospital p1
H
Harmony Living Centers, LLC p8
Harris Williams & Co. p4
Health Management Associates p3
Healthcare Acquisition Corp. p16
HealthSouth p8
Henry Ford Health System p2
HSBC Bank p9
Hythiam p4
I
IntraLase p9
Investor AB p9
J
J.E. Robert Cos. p8
JER Partners p8
Jiate Excelsior p7
JP Morgan Securities, Inc. p9
K
Kodak p9
L
Lehman Brothers p9
L’Oreal p16
M
Martindale p9
Mary Immaculate Hospital p2
MDS p10
Medtronic p10
Merck KGaA p16
Merrill Lynch Japan Securities p16
Mistubishi Pharma Corp. p16
Mitsubishi Chemical Holding p16
Molecular Devices Corp. p10
Molnlycke Health Care Group p1
Moog p10
Morgan Stanley Bank International p9
Morgan Stanley Principal Investments p9
MPM Capital p16
Municipal Hospital Authority p2
N
National Home Health Care Corp. p4
Navigant Consulting p2
Nomura Securities p16
Novartis p16
Novo Nordisk A/S p14
O
Onex p9
OrbiMed p16
P
Palatin Technologies p15
Passaic Beth Israel p2
PBI Regional Medical Center p2
PCS Health Systems p8
Permira p16
Pharmaceutical Technologies and Services p9
PharmAthene p16
Pinnacle Easy Care p9
PrairieStone Pharmacy p9
Premier Home Health Care Services p4
Proskauer Rose, LLC p2
Prudential Equity p8
R
Ranbaxy Laboratories p16
RediClinic p15
Regent Medical p9
Revolution LLC p15
RevolutionHealth.com p15
Rite Aid Corp. p8
S
Saint Vincent Catholic Medical Centers p2
Sanderling Ventures p16
Sandoz p16
Sanofi-Aventis p15
Seattle Genetics p10
SEB Merchant Banking p9
Select Medical Corp. p8
Sigma-Tau Group p14
Sigma-Tau Pharmaceuticals p14
SkyePharma PLC p16
SSL International p9
St. John’s Queens Hospital p2
St. Mary Hospital p2
St. Mary’s Hospital p2
St. Vincent’s Staten Island Hospital p2
Sunrise Senior Living REIT p8
T
Tanabe Seiyaku Co. p16
Tenet Healthcare Corp. p1
Teva Pharmaceutical Industries p16
Texas Pacific Group p16
Total p16
Triad Hospitals p16
U
UBS Investment Bank p8
United Surgical Partners International p9
University of Pennsylvania Health System p1
V
Ventas p8
Vision Sciences p10
W
Wakefield Capital Corporation p8
Wal-Mart p15
Walgreens p9
Welsh, Carson, Anderson & Stowe p9
Wilkinson Corporation p8
Wyckoff Heights Medical Center p2
Wyeth p10
X
XTL Biopharmaceuticals p10
Z
ZEVEX International p10
Ziegler Capital Markets Group p8 |
New Year’s Hospital M&A - Hospitals Realign
In The New York City Metropolitan Area
Email Editor
The start of the New Year continued some
themes in the Hospital M&A market that closed the Old Year. One is the
reappearance of not-for-profit operators, particularly Roman Catholic
hospitals, as a major force in the market, both as buyers and sellers.
Four deals were announced in
January involving a total of five hospitals; three of the month’s deals
and four of the facilities crucially involved Catholic hospitals. By
comparison, December 2006 posted six deals with eight hospitals. Five of
those deals, impacting seven hospitals, involved Roman Catholic providers.
January’s lone for-profit deal
involved the sale of yet another hospital, 240-bed Graduate Hospital
in Philadelphia, by Tenet Healthcare Corp. (NYSE: THC). The buyer
is the University of Pennsylvania Health System (UPHS). Once this
deal closes, THC will have four hospitals in the southeastern Pennsylvania
market, down from an all-time high of eight.
Consistent with the
overbedding of acute-care hospitals in urban markets, UPHS is forming a
joint venture with Good Sheperd Rehabilitation Network to convert
Graduate Hospital and operate it as a facility with 58 rehabilitation and
38 LTAC beds.
Taking A Bite Out of
The Big Apple
The New York City
metropolitan area illustrates well this flurry of M&A activity. Last
month’s issue covered the sale of St. Mary Hospital, a 328-bed
facility owned by the Maryland-based Bon Secours Health Care System,
to the Municipal Hospital Authority of Hoboken, New Jersey.
However, this is not the last divestment contemplated by 15-hospital Bon
Secours; it is currently exploring the sale of its two-hospital joint
venture with Detroit’s Henry Ford Health System, Bon Secours
Cottage Health Services, in which it holds a 70% interest. With these
sales, the System hopes to reduce its debt load by $192.0 million.
The transformation
of the hospital market in the NYC metro area continued in January. St.
Mary’s Hospital, a 188-bed Catholic provider in Passaic, New Jersey,
won its $36.7 million bid to buy PBI Regional Medical Center, a
264-bed acute care hospital also in Passaic. In May 2006 Navigant
Consulting took over managing the financially distressed PBI; since
July 2006, PBI has been operating under bankruptcy protection. The
relevant acquisition multiples in this deal are 0.27x revenue and $139,000
per bed. PBI took shape in 2003 when Passaic Beth Israel bought
General Hospital Center, both in Passaic, for $35.0 million. At that
time, Passaic had three hospitals with an average 60% daily census, and
was considered overbedded. Passaic Beth Israel had even floated the idea
of acquiring St. Mary’s as early as 1998. Once the current sale closes,
St. Mary’s plans to sell its current facilities and move to the PBI
campus, which is the site of the former General Hospital Center. Thus, in
just eight years, Passaic’s three hospitals have consolidated into one.
In 2005, we reported the
bankruptcy reorganization of Saint Vincent Catholic Medical Centers,
headquartered in Manhattan. As the largest not-for-profit hospital
bankruptcy proceeding in the country draws to a close, New York’s hospital
market keeps evolving. Saint Vincent has sold two facilities in Queens,
227-bed St. John’s Queens Hospital and 221-bed Mary Immaculate
Hospital, to Caritas Health Care for $40.0 million, or $89,300
per bed. Caritas, the stalking horse bidder in the bankruptcy auction, is
owned by 294-bed Wyckoff Heights Medical Center, which straddles
Brooklyn and Queens. While administered by Caritas and networked with
Wyckoff under the Brooklyn Queens Health Care System, the finances
of the two former Saint Vincent facilities are to be structured
separately—and prudently—from Wyckhoff’s.
In a second deal, Saint
Vincent sold 440-bed St. Vincent’s Staten Island Hospital to
Bridge Regional Health System (BRHS), the parent of 278-bed Bayonne
Medical Center in New Jersey, for $27.5 million, or $62,500 per bed.
The Staten Island facility came under the supervision of BRHS on January
1, with the new name Richmond University Medical Care. Some are put off by
the name since the hospital isn’t directly affiliated with a university;
BRHS retorted that it is a teaching hospital. In both Saint Vincent deals,
the buyers received legal representation from the firm of Proskauer
Rose, LLC.
We have seen large
hospital operators aspire to a truly national presence only to fracture
into smaller, regional operators. New York City, in many respects a
microcosm of the country, is seeing citywide systems break up into
smaller, locally focused networks borough by borough.
We do not believe
for-profit operators will remain absent from the Hospital market for long,
however. In a move to strengthen its balance sheet, Health Management
Associates (NYSE: HMA) recently announced plans for a recapitalization
package. Part of that package is to pay a onetime dividend of $10.00 per
share to its equity holders. Another part is to change how it accounts for
patient bad debts, a problem that has been plaguing all hospital
operators. HMA will record a $200.0 million fourth-quarter charge to
increase its reserves for receivables not covered by health insurance, and
will start reserving a significant portion of self-payor accounts at the
time they are created, rather than waiting 120 days, as was their previous
practice. This will resolve problems with overstating receivables and
timing issues. And, in the wake of a class-action settlement, HMA is also
offering new discounts to the uninsured, which it hopes will lower
bad-debt expense. Sheryl Skolnick, senior VP at CRT Capital Group,
noted, "There is risk here, in our view, but risk that we think the market
likely ignores today." If HMA can weather the static it has been taking in
the investment community and bolster its balance sheet with this
recapitalization, it may make the company a less likely target for an LBO
going forward. And it will strengthen its bargaining position as a
potential buyer.
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