HCA may get private room

John Dimsdale Jul 24, 2006

TESS VIGELAND: There’s a lot of money sloshing around in private equity firms these days. If you had any doubt, check out the price tag of today’s big purchase: $33 billion. Could be the largest leveraged buyout in history. Not a figure for the faint of heart. But if you did feel faint, you could go to one of the emergency rooms that’s part of today’s deal. A private equity consortium is buying HCA, the nation’s largest for-profit operator of hospitals. But profits have been scarce of late. So what’s so attractive about HCA? John Dimsdale reports.

JOHN DIMSDALE: Hospitals have been having a rough time recently. More and more uninsured patients are showing up on their doorsteps. And doctors have been taking advantage of new technologies to perform more medical procedures on an outpatient basis.

Those are some reasons why HCA is carrying almost $12 billion in debt and why the stock price is near historic lows. So why are private equity investors like Kohlberg, Kravis, Roberts and Merrill Lynch willing to pony up more than $30 billion for HCA?

James Unland with Health Capital Group says they see a firm that’s suffering only a temporary slowdown.

JAMES UNLAND: I think the investors probably are counting on: Number one, HCA’s relatively newer facilities; Number two, the state of their sophisticated management systems — remember this is a company that’s been running as a multihospital system for quite some time, notwithstanding the bumps in the road.

By taking the company private, these investors also figure they can make major strategic changes in HCA’s business plan. Frank Morgan is an industry analyst with Jeffries and Company.

FRANK MORGAN: If you’re a public company, sometimes when you invest dollars on the front end to get long-term returns, in the near-term you don’t see the financial results. You’re certainly better off being a private company to make those major strategic shifts than you are being a public company where analysts are scrutinizing you every quarter.

Most analysts figure the private investors plan to polish up HCA’s management and take it public again in the near future. HCA’s founding family includes Senate Majority Leader Bill Frist.

In Washington, I’m John Dimsdale for Marketplace.

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