Investors prowl for hospital buy-out deals

It’s been an interesting few months for private investment in hospitals. Investors have developed an avid interest in hospital properties, though few deals have surfaced yet.  While ratings agencies don’t seem too impressed with hospitals’ profit potential, investors are betting that they’ll  do well under reform.

Consider the following deal, announced in March, in which a private equity firm will take a group of non-profit Catholic hospitals and turn them into for-profit institutions:

Caritas Christi Health Care, the state’s second-largest hospital group, is set to disclose today that it has agreed to be acquired by New York private equity firm Cerberus Capital Management in an $830 million deal that hospital officials say will allow the chain to shed debt and make major improvements. (The Boston Globe)

The buyout won’t go through until it’s approved by the state’s Attorney General, who has to decide whether the for-profit conversions are in the public interest. But our guess is that the deal will eventually get done, considering that Caritas is in dire financial trouble and needs money to invest in facilities and repairs. And Cerebus gets a deal which, as I see it, has considerable upside potential.

And then there’s this near miss, in which Tenet tried but failed to acquire Aussie hospital chain Healthscope:

Tenet Healthcare Corp.’s scuttled bid for Australia’s Healthscope Ltd. became a “no-win situation” after information about the proposal was leaked and investors became opposed, Chief Executive Officer Trevor Fetter told Business Week.  Dallas-based Tenet withdrew its nonbinding offer for Melbourne-based Healthscope, Australia’s second-largest hospital operator, on June 7 after investors criticized the deal.

While the deal has perplexed journalists covering the story, and analysts on the Street, I’m not puzzled. To my mind, Tenet is thinking long-term — to the era when global reach is critical to running a big healthcare business.

Admittedly, these are just a couple of snapshots draawn from a large and complex picture. But there’s many more deals lurking in the corridor. My guess is that the pace of hospital acquisitions is going to pick up dramatically by Q4 of this year.

About the author

Anne Zieger

Anne Zieger

Anne Zieger is a healthcare journalist who has written about the industry for 30 years. Her work has appeared in all of the leading healthcare industry publications, and she's served as editor in chief of several healthcare B2B sites.