hospital impact

Wowsers, just when we all thought the deal was dead, HCA has been sold for $21.3B (after paying off the $11.7B in debt). The only bigger LBO deal in US history would be KKR's acquisition of food/tobacco giant RJR Nabisco for $25B.

Just last week, the word was that the $11B in debt was a bit too much for investors to swallow. In the final stages of the negotiations, people speculated the offers were just 10% apart. But all that is ancient history now. Barring any sweeter offers in the next 50 days, HCA is as good as sold.

You figure that in the last 12 months, they've generated $1.28B in net profits, this $21B purchase is 16.4x Net Profits. Their earnings before taxes interest & taxes is something like $3B, so that's ~7x EBIT. Overall, this is "within the range" you'd expect (maybe just a little on the high side). HCA stock has risen ~20% since the buyout rumors started last week.

Why would HCA want to be sold? Is this a typical cash out / time to retire motivation? No way. Given that it's Thomas Frist himself (the company founder) who initiated and led this investment group to buy it, he's probably up to something that he couldn't accomplish with his existing board, resources, & management.

Why would this group of investors want to buy this behemoth? Same reason any VC firm does - they believe the company is more valuable in their hands than in the current hands. They see ways to improve or restructure operations enough (better mgmt, economies of scale, tax advantages, better m&a strategy of individual hospitals?, etc) that these improvements will generate way more $$$ than they put in.

How does this impact hospitals around the country? Nothing at all for 18-24 months. However, in those areas where you're competing against an HCA hospital, expect to see some drastic changes soon after that. I'm guessing that once the new direction is set, HCA will look at each hospital pretty rigorously and then either be investing heavily into it or divesting it pretty quickly, spurring a whole wave of individual hospital m&a (the last time Frist took his company private, he went from 146 hospitals down to 99). For those hospitals they decide to keep, I'd guess that these hospitals will operate more and more like each other - so, look for the best HCA hospital in the country and start imagining that kind of hospital in your backyard.