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Private equity and M&A booming in healthcare

April 13th, 2007

by Tony Chen

Is it me or has there been a tidal wave of healthcare-related private equity and investment deals recently?

Here are the highlights of recent healthcare private equity & privatization activities:
- HCA went private for $21B - the biggest LBO in history at the time.
- USPI went private for $1.8B - by far, they are the largest surgery center operator in the country
- Texas Pacific Group, a private equity firm, bought HealthSouth's surgery division for $945M
- Many speculate that we aren't done yet. I'm betting on LifePoint as the next big deal to break - this would be ~$2.5B deal.

On the M&A side of things, there's been quite a bit of activity
- Triad & CHS $7.1B Merger (which really could count as a privatization)
- CVS bought MinuteClinic for $180MM or so. I think this signals a strategic bet from CVS management - they think that healthcare is the product/service differentiator they've been looking for to drive the next wave of in-store traffic growth.
- Hospitals also continue to buy each other out - there has been a lot of activity of late. 2006 was a banner year with 57 hospital transactions. Since the bottom-out of 2003, hospitals continue to be active. Turned-around or desperate-for-a-turnaround hospitals are the most attractive targets.
- Maybe the hottest area (but under the radar) is senior care - more are opening and many are being bought out at record prices. There's less red tape, a lot of market fragmentation, and baby boomers flooding the gates.

I won't even get into the other sectors of healthcare, except to say that CVS bought Caremark for $26.5B and Pharma companies announced 10 deals in February worth $7.5B. It's a good time to be a dealmaker.

What all of this tells me is this:
* We shouldn't be surprised as this is a cyclical phenomena. I've heard experts talk of the 10-year cycle, and right now we are on the upswing.
* I don't think this is specific to healthcare, though healthcare is one of the hottest sectors right now for VCs.
* The outsiders (the financiers) and the insiders (hospital leadership) are looking at the same businesses. But the outsiders see more value in these businesses. Is the hospital industry going through a strategy make-over?


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