Contributed by Fred Bazzoli and Chip Means
PLANO, TX – With another of the nation’s largest hospital chains announcing a multi-billion dollar buyout last month, speculation about other possible provider chain sales continues to circulate in the healthcare industry.
Last month, Triad Hospitals Inc. entered into a buyout deal with an estimated value of $6.4 billion, which includes assumption of the chain’s debt.
The acquisition involves affiliates of two private equity firms, the company has announced. JPMorgan Chase’s CCMP Capital Advisors and Goldman Sachs Capital Partners will acquire all shares of Triad stock, pending approval from shareholders.
Industry analysts say other provider chains might be acquisition targets, although buyout speculation is pushing stock prices higher.
With 54 hospitals and 13 ambulatory surgery centers in 17 states, Triad is a major hospital operation, management and consulting firm.
The announcement comes less than three months after shareholders of HCA Inc., a Nashville, Tenn.-based hospital chain, approved its $25 billion acquisition.
Triad’s board of directors approved the acquisition after receiving consent from Triad’s Special Committee of disinterested directors, who were advised by Lehman Brothers, Inc.
“After thorough and extensive analysis, the Special Committee and our board have endorsed this transaction with CCMP Capital and GSCP as being in the best interests of the company and our stockholders,” said James Shelton, Triad’s chairman and chief executive.
CCMP and GSCP will pay $50.25 per share under the agreement. The estimated transaction cost of $6.4 billion includes assumption of Triad’s $1.7 billion of debt.
Adrian Jones, managing director of GSCP, said in a press release that the equity firm shares Triad’s growth plan, which includes partnerships with not-for-profit hospitals. CCMP Capital Managing Director Stephan Murray lauded Triad’s “strong commitment to its patients, physicians and employees.”
Triad executives say they are willing to look at better acquisition proposals during the next 40 days, while the companies seek approval from shareholders and regulators.
Triad was a target for acquisition for many reasons, said Dan Williams, principal for Montgomery & Co., a San Francisco-based investment banking firm.
“Like HCA, private equity firms viewed Triad as a strong cash generator but saw it as undervalued on the public market,” he said. “Given the cash flows generated by some of these hospital chains, the private equity funds see opportunities to cut costs and improve operations without the overhang of being a publicly traded company.”
However, cutting overhead is often a challenge in hospitals, which are highly regulated and require so much labor.
“The real question is whether these hospitals can cut costs and maintain quality of care,” Williams said. “Triad was viewed as a target that had room to trim overhead.”
Other healthcare companies could be takeover targets. Williams and Sheryl Skolnick, senior vice president of CRT Capital, list LifePoint Hospitals Inc. and Community Health Systems Inc. as possible targets. Skolnick says Universal Health Services Inc. is another candidate.