By Maciej Wilowski,
Money and Investing Writer
TeamHealth, a hospital staffing corporation based in Tennessee, agreed on Monday, October 31st to be bought by private equity firm Blackstone Group in a deal amounting to $6.1 billion.
Company executives at TeamHealth, a company struggling with pricing pressure amidst a wave of consolidation, believe the acquisition could help the company deal with any further losses.
Furthermore, TeamHealth has been the target of hedge fund Jana Partners LLC since February of this year, after the investor disclosed an eight-percent stake in the company.
The hedge fund had criticized the medical service provider for its inefficiency in capital allocation. Despite their own interests in TeamHealth, Jana Partners has expressed consent and voted in favor of the acquisition by equity firm Blackstone in recent days, and has relinquished its claims on the company’s equity.
The deal with Blackstone is expected to be completed by mid-2017, and would benefit the financial prospects of both firms.
Blackstone Group, which specializes in private equity and asset management concerning other companies, had initially transformed TeamHealth into a public equity firm seven years ago. Since then, TeamHealth has grown significantly both in earnings and total employment.
At the time of initially becoming a public corporation in 2009, TeamHealth employed about six thousand workers. This figure had risen to about twenty thousand by the middle of this year.
Earnings have also followed suit, as reported holdings have risen from $0.16 billion in 2009 to an estimate of $0.49 billion by year-end 2016.
The company’s equity price peaked in July of 2015 at $67 per share, and has since declined to $42 per share as of early November. The company is also struggling with an outstanding debt of $2.47 billion. Upon acquisition, Blackstone agreed to pay TeamHealth shareholders $43.50 per share, a premium of about eighteen percent.
Consolidations within the physician and medical services industry have become common during the past year as companies seek to counter rising administrative costs associated with the Affordable Care Act as well as the need to offer more services to patients.
Corporations such as TeamHealth are tasked with providing emergency medical care, ambulance services, and anesthesiology to hospitals throughout the country. Prior to the agreement with Blackstone, TeamHealth had acquired a smaller hospital service provider, IPC Healthcare, for $1.5 billion, but operational challenges have slowed the acquisition process and generated hiccups in consolidation.
A larger third-party firm, Amsurg Corporation, had previously proposed an agreement to purchase TeamHealth for $5 billion last year, an offer that was rejected by board members of TeamHealth. This decision preserved TeamHealth’s independence for an additional year before the agreement with Blackstone was struck.
Under the direction of Blackstone, TeamHealth can continue its integration process of IPC Healthcare at lower costs and maintain a strong position in the health services industry, at a time when the future prospects of the fragmented industry are uncertain.
Should the opportunity arise for the acquisition of other small industries similar to IPC Healthcare, TeamHealth may be able to manage on its own.
On the downside, however, the company’s debt as a percentage of its total revenue will continue to increase after the deal is fully completed.
Analysts estimate that if TeamHealth can spend a minimum of $3 billion in merger acquisitions over the next five years, it will be able to double its current yearly revenue and secure a respectable growth rate in years to come.
A version of this article appeared in the Tuesday, November 8th print edition.
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