In the March 2007
issue:
February’s Hospital M&A Market - Triad
Hospitals Privatized In $6.4 Billion Deal
February saw a resurgence of for-profit Hospital M&A as Triad Hospitals was
taken private by a group of private equity firms in a transaction worth $6.4
billion. Not-for-profit operators around the country are pondering whether
to stay independent or merge.
...
Pharma Captures Big Bucks - Ten Deals
Announced Worth A Combined $7.5 Billion
Ten Pharma deals were announced in February, totaling $7.5 billion. As
branded drugs go off patent, some are being acquired and re-marketed in
specialty niches. Big pharma continues search for drug candidates to
replenish disappearing blockbusters.
...
In The Departments
Services
February’s M&A Market
-
Health Care Services
-
Deal Summaries
-
Additional Transactions
-
Transaction Updates
Technology
-
Health Care Technology
-
Deal Summaries
Additional Transactions
-
Transaction Updates
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Articles Archive
Companies Mentioned in this issue:
March 2007
3i p10
3M p16
A
Acambid plc p10
Acolyte Biomedica p16
Actavis p9
Adeza Biomedical Corporation p15
Adiana p15
Adnexus p10
Advanced Cell Technology p13
Advanced Healthcare p7
AEW Senior Housing p4
Allergan p9
Alta Partners p10
Altana Pharma AG p10
AmSurg Corp. p8
Anaheim Memorial Medical Center p3
Angelo Gordon & Co. p4
ARCH Venture Partners p8
Arrow Therapeutics p10
Astellas Pharma, Inc. p10
AstraZeneca p10
Atlas Venture p10
Aurobindo Pharma Ltd. p9
Aurora Healthcare p7
Avista Capital Partners p7
Azyxxi p15
B
Banc of America Securities p1
Baptist Health System p3
Barr Pharmaceuticals p14
Bear, Stearns & Co. p8
Beaumont Hospitals p3
Bharat Biotech International, Ltd. p10
Bio-Imaging Technologies p8
BioReliance Corp. p7
BioRexis Pharmaceutical Corporation p14
BioSource Europe, S.A. p8
Bon Secours Cottage Health Services p3
Bon Secours Health System p3
Bristol Consultants p7
Bristol-Myers Squibb p10
C
Canyon Creek Development, LLC p4
Caremark Rx p8
Carolinas HealthCare System p2
CB Richard Ellis p4
CCMP Capital Advisors, LLC p1
Cepheid p10
Chartwell Seniors Housing REIT p4
Cipla Ltd. p9
Coloplast A/B p16
Compass Capital p16
Concentra Operating Corp. p7
Core Oncology p16
Coventry Health Care p7
CVS Corporation p8
Cytyc Corporation p15
D
Dako Denmark A/S p15
Dakota Clinic/Innovis Health p3
Datascope Corp. p16
Detroit Medical Center p3
Dr. Reddy’s Laboratories p9
E
EndoArt, SA p16
EQT p15
Essentia Health p3
Excelsis Healthcare p7
Express Scripts p8
F
Familymeds p8
First Check Diagnostic, LLC p16
G
Galderma, S.A. p9
GIMV p10
GlaxoSmithKline p10
Goldman Sachs p1
GS Capital Partners p1
H
Health Management Associates p2
Healthcare Financial Management Association p2
Healthcare Realty Trust p4
Healthcare Transactions Group p4
Heavenrich & Company p7
HemoCue p15
Henry Ford Health System p3
HIG Capital p2
Holladay Care Center p4
I
Ikaria p8
Ikaria Holdings p8
Infigen, Inc. p13
INO Therapeutics p8
Inpatient Services p7
Interim Healthcare of Louisville, Inc. p4
Inverness Medical p16
Invitrogen Corp. p7
IPC-The Hospitalist Co. p7
Ipsen p9
ITX p10
J
Johnson & Johnson p14
K
Kelly Home Care Services p3
Kelly Services p3
Kindred Healthcare p4
Kingsport Consultants p7
L
Larkin Community Hospital p2
Lexington Memorial Hospital p2
L’Oréal p9
M
Marcus & Millichap p4
Maternal Child Health p4
McKesson Corp. p14
Medical Associates Health Centers p7
Medical Personnel Pool of Louisville, Inc. p4
Medstory p15
Memorial Health Services p3
Mentor Corp. p16
Merck & Co. p8
Merck KgaA p9
Merit Medical Systems p16
Merlin BioMed Group p10
Merrill Lynch p8
Metropolitan Health Community Services p2
Microsoft p15
Mitsubishi Chemical Holding p1
Mitsubishi Pharma Corp. p1
Modern Medical Modalities p15
MTI-II Partners, LP p15
N
National Home Health Care p4
Nestlé p9
New Mountain Capital p8
New River Pharmaceuticals p1
NIF Partnership p10
Nightingale Informatix Corporation p14
NorthEast Medical Center p2
Novartis p9
Novo Nordisk p15
Nycomed p10
O
Oakwood Healthcare System p3
P
Pan American Hospital p2
Paradise Preservation Group p3
Paradise Valley Hospital p2
Pediatric Services of America p4
Pfizer p13
Physician Micro Systems p15
Pliva p14
Practice Partner p14
Premier Home Health Care Service p4
Presbyterian Healthcare p2
Prime Healthcare Services p2
ProHealth Care p7
Promesan, S.r.L. p16
Q
Quest Diagnostics p15
R
Ranbaxy Laboratories p9
Regency Care p4
ResCare p3
ResVerlogix p13
RevolutionHealth p15
S
Salix Pharmaceuticals p8
Sandoz p9
Sangtec Diagnostics p10
sanofi-aventis p10
Senior Lifestyle Corporation p4
Shire Pharmaceuticals Group plc p1
Sistema de Salud Metropolitano p2
Sound Inpatient Physicians p7
Southern Home Care Services p4
St. John Health System p3
Sun Healthcare Group p7
SunBridge Healthcare p7
T
Tanabe Seiyaku Co. p1
Teva p9
The Ensign Group p4
The Heritage p4
The Linde Group p8
The Ryerson Company p4
The Village at Lake Norman p4
Theralys p8
Triad Hospitals p1
Trilogy Long-Term Care p4
TVM Capital p10
U
Unibio p10
United Health Care p2
V
Valeant Pharmaceuticals p9
VantageMed p14
Venrock Associates p8
W
Walgreen Co. p8
Walton Street Capital, LLC p4
WellPoint p7
Wellspring Partners p3
Wilkerson Health Care p4
WSL Heritage Investors V p4
X
XenoPort p10 |
February’s Hospital M&A Market - Triad
Hospitals Privatized In $6.4 Billion Deal
Email Editor
*PLEASE NOTE
On Monday, March 19, Community Health Systems (NYSE: CYH) announced that
it was taking advantage of the go-shop provision in the $6.4 billion deal
to privatize Triad Hospitals (NYSE: TRH), discussed below, and would make
an enhanced offer of $6.8 billion to acquire the 54-hospital system. This
announcement caught many by surprise since Community Health has never made
such a large acquisition. However, the private equity firms that
originally agreed to buy Triad and take it private appear not to be making
a counteroffer. If this new deal goes through, the resulting company will
be the largest publicly traded hospital management company in the country
and the second-largest investor-owned hospital company (after HCA).
Details and analysis will appear in the April issue of Irving Levin’s
The Health Care M&A Monthly.
Last month’s issue featured
recent activity in the not-for-profit Hospital M&A market. This month
provides a sharp counterpoint with the $6.4 billion privatization of
publicly traded Triad Hospitals (NYSE: TRI) by a consortium of
private equity firms.
A spin-off of HCA (NYSE: HCA),
Triad currently operates 51 hospitals and 10 outpatient surgery centers in
15 Sunbelt and Western states with a combined total of 8,070 beds. On a
trailing 12-month basis, TRI generated revenue of $5.4 billion, EBITDA of
$734.0 million and net income of $228.0 million.
The buyers include affiliates of
CCMP Capital Advisors, LLC and Goldman Sachs’ GS Capital
Partners. They are offering $50.25 per share, for a total of $4.39
billion, and will assume $1.79 billion in debt. This transaction offers
TRI shareholders a 16% premium over the stock’s prior-day price. The
relevant acquisition multiples are 1.2x revenue and 8.7x EBITDA.
It is doubtless just a
coincidence, but this deal followed the release of a report by a Banc
of America Securities analyst attributing the bad-debt problem faced
by the hospital industry to the accounting of revenue recognition, not to
an increase in the uninsured population. The analyst believes for-profit
hospitals have been employing aggressive revenue recognition techniques to
meet their investors’ quarterly earnings demands. Healthcare Financial
Management Association’s (HFMA) Statement 15 says hospitals should
recognize revenue for patient services only when they can reasonably
expect to collect payment. In the case of the uninsured, where the
expectation of actually getting paid should be low, some for-profits
appear to be jacking up the anticipated revenue, which when uncollected
would become a bad-debt write-off. In a ranking of seven for-profits,
Triad Hospitals appeared to be the most aggressive among large hospital
chains in doing this. Naturally, as a private entity, TRI will have fewer
shareholders—and more savvy ones— to be spooked by such issues. Triad is
not the only hospital company, however, to face the challenges posed by
revenue recognition procedures; last month, we noted Health Management
Associates (NYSE: HMA) was taking steps to shore up its own procedures
for dealing with so-called self-payor accounts. In any event, the
president and CEO of HFMA appears to believe this amounts to a short-term
timing issue which will effectively wash out over successive periods.
Carolinas HealthCare System
(CHS), which operates or manages 19 hospitals in the Carolinas, recently
announced plans to acquire 457-bed NorthEast Medical Center in
Concord, North Carolina. This merger provides NorthEast with the needed
capital and expertise to execute its growth plan, resources that would
have been hard to muster as a stand-alone hospital. NorthEast had held
talks with rival system Presbyterian Healthcare, but ultimately
decided on CHS instead. This announcement illustrates some of the
soul-searching that is taking place among other acute-care providers in
North Carolina’ Triad region. The president of Lexington Memorial
Hospital, a 94-bed facility, is planning to ask his board of directors
whether they would like to review their strategic choices, including
merging with a larger system. Part of the backstory includes recent
changes to how the government defines metropolitan statistical areas in
the Triad, which have resulted in Lexington Memorial being reclassified as
a rural hospital. The upshot is that it will lose about $700,000 per year
in revenue beginning in October. While facilities in the Triad seem to
exhibit a stubborn streak of independence, government tinkering with
reimbursement protocols may drastically alter the provider landscape,
prompting a merger. Just ask anyone in the home health care business.
Puerto Rico’s Sistema de
Salud Metropolitano (SSM) is buying Pan American Hospital, a
bankrupt 146-bed acute care facility in Miami, for $34.0 million, or 0.56x
2005 revenue. Pan American was founded in 1963 to serve the Cuban exile
community, but it filed for bankruptcy protection in 2004 after
accumulating debt from its 1999 purchase of 17 clinics from United
Health Care. SSM’s subsidiary, Metropolitan Health Community
Services, won the bankruptcy auction. HIG Capital, a
Miami-based private equity firm bid $33.5 million, and Larkin Community
Hospital of Miami also came up short. The facility has been renamed
Metropolitan Hospital of Miami.
After receiving clearance
from the state’s attorney general, Prime Healthcare Services (PHS)
has virtually nailed down its $30.0 million acquisition for 301-bed
Paradise Valley Hospital in National City, California. This bid beat
out a competing $40.0 million bid from Paradise Preservation Group,
largely because financing for the latter proposal remained contingent on
approval. PHS’ receipt of clearance coincided with the announcement of
another deal: PHS plans to buy 224-bed Anaheim Memorial Medical Center
from Memorial Health Services.
Last month, we reported that
Maryland-based Bon Secours Health System was looking to divest its
70 percent share of Bon Secours Cottage Health Services in Grosse
Pointe, Michigan. At least five suitors have emerged in the interim:
Oakwood Healthcare System of Dearborn, Michigan; Beaumont Hospitals,
Royal Oak; St. John Health System, Warren; the Detroit Medical
Center, Detroit; and, naturally, the Henry Ford Health System,
Detroit. Naturally, since it already owns the other 30 percent of the Bon
Secours Cottage J.V. In the Northern Plains, Essentia Health of
Duluth, Michigan, and Dakota Clinic/Innovis Health of Fargo, North
Dakota, have entered into merger talks that would convert the latter into
a private, nonprofit subsidiary of nine-hospital Essentia. Innovis Health
is a 74-bed hospital owned by The Dakota Clinic, a for-profit physician
group with 22 clinics. With 2006 revenue of $1.07 billion, Essentia is
much larger than Dakota Clinic/Innovis Health, with about $230 million.
East Knoxville, Tennessee’s four-hospital Baptist Health System has
hired Wellspring Partners to handle day-to-day operations while it
keeps looking for a buyer or capital partner. Baptist had had in place an
80-20 joint venture with Triad Hospitals, which would have paid $180.0
million for its 80 percent interest. But that deal fizzled out last
November because TRI’s timetable for finishing it wasn’t soon enough for
Baptist Health. So it appears that Triad will go private without Baptist
Health on board.
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