Coveted Hospitals Fetch Premium Prices
As Community Health Systems and Tenet Healthcare Corp. continue with their divestiture programs, their competitors are scooping up the most valuable properties. But, they’re not getting them at a bargain.
“This is a unique period with (Tenet and CHS) in the midst of divestiture plans,” said Megan Neuburger, managing director at Fitch Ratings, adding that the restructurings at Tenet and CHS are offering well-capitalized not-for-profit systems rare opportunities to buy hospitals that they may have coveted for a long time.
CHS executives say the 30 hospitals it’s sold or agreed to sell in recent months are fetching a premium price on average of 10 to 12 times earnings before interest, taxes, depreciation and amortization.
This summer, HCA acquired three Tenet hospitals in Houston to expand its reach there to 13 hospitals. The purchase price of $750 million was roughly 9.5 times the $80 million in annual EBITDA the three hospitals were generating.
Buyers today often are willing to pay more for hospitals than in past years because they fill a real strategic niche for the acquirer, said Jeffries & Co. healthcare analyst Brian Tanquilut. He points to Tacoma, WA-based MultiCare Health System’s $425-million acquisition of CHS’s two-hospital Rockwood Health System in Spokane. The assets gave the system a broader statewide presence.
For the past several years, CHS and Tenet have been buyers rather than sellers. But, no longer. Their divestiture campaigns are contributing to a very busy year for hospital M&A activity, which is expected to eclipse the 120 completed in 2016, according Anu Singh, managing director at healthcare financial advisory firm Kaufman, Hall & Associates. In 2017 so far, there have been 87 announced hospital transactions.
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