New Report Shows Values Down Slightly in 2007
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Results from The Health Care Acquisition Report, 14th edition,
present a number of conclusions about the merger and acquisition market for hospitals and allied services sectors.
The 2007 hospital M&A market resembled 2006 in that both years could boast a very large, multi-hospital transaction which tended to skew statistics. In 2006 a consortium of private equity companies privatized HCA, Inc., which operated 181 acute-care facilities, in a deal worth $33.0 billion. In 2007, Community Health Systems (NYSE: CYH), now the largest publicly traded hospital operator, paid $6.8 billion to acquire Triad Hospitals and its 51 facilities. Unlike the period of 2004–06, financial buyers such as private equity groups were largely absent in 2007. Only one deal, involving the acquisition of a portfolio of Long-Term Acute Care hospitals, was carried out by a private equity firm; the rest were strategic buyers.
Another feature that characterizes the hospital M&A market for 2007, as it did in 2004–06, is a reshuffling of portfolios to create stronger regional networks and cast off financially, strategically and geographically marginal, outlying facilities. In the wake of its purchase of Triad Hospitals, Community Health Systems has wasted no time in rationalizing the resulting facility portfolio with the sale of 13 hospitals in five deals. In this capacity, it overtook Tenet Healthcare Corp. (NYSE: THC), previously the largest seller of hospitals.
A total of 58 transactions were announced in 2007 involving 149 hospitals with 22,440 beds for a combined total of $8.8 billion. This represents a general decline from 2006 when 57 deals were announced involving 249 hospitals with 54,550 beds for $35.0 billion, an amount that included the record-breaking $33.0 billion privatization of HCA by a consortium of private equity firms. Hospital pricing in 2007 declined slightly with average and median price-to-revenue multiples of 0.74x and 0.60x, respectively, from the corresponding 2006 figures of 0.75x and 0.73x, but still above their 2004 counterparts of 0.61x and 0.53x.
Due perhaps to the real estate component of many hospital deals, financial buyers were largely absent themselves from the 2007 Hospital M&A market; a number of not-for-profit operators, including large Catholic systems, filled the gap left by their absence. The full report is now available from Irving Levin Associates (click here for more information).
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