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Tenet Healthcare Corporation THC recently announced that it will complete the buyout of a portfolio of up to 45 ambulatory surgery centers (ASCs) from SurgCenter Development (SCD). The deal will help the company enhance its ambulatory business line. Notably, this portfolio will be operated by the company’s United Surgical Partners International (USPI) subsidiary.
These centers are spread across Arizona, Florida, Indiana, Louisiana, Maryland, Ohio, New Hampshire, Texas and Wisconsin.
Notably, SCD was founded in 1993 and it is a market leading developer of ASCs. The deal is expected to be leverage neutral.
Per the terms of the deal, Tenet Healthcare will acquire majority interests in up to 45 centers by acquiring SCD’s interests completely and by partially purchasing stakes from physician partners for a value of $1.1 billion in cash and the assumption of nearly $18 million of center-level debt.
USPI’s ownership interest will be up to 60% in each of the centers while the remaining part is being owned by physician partners. The company will consolidate the financial results of the Portfolio within its Ambulatory Care segment apart from two other centers wherein USPI will hold a minority share.
With this deal, customers will benefit from affordable healthcare, gaining a better experience in the bargain.
This leading hospital company anticipates closing the buyout of the rest of the Portfolio by this year-end. However, the same is subject to certain conditions.
The company's Ambulatory Care segment, which includes the operations of its USPI joint venture and Aspen facilities, has been performing well of late. This deal is in line with its commitment to enhance its ambulatory platform. It also signifies how both companies coped with the COVID-19 pandemic.
This deal ideally complements USPI’s nationwide reach of its ambulatory surgical facilities.
Rationale Behind the Deal
This deal will create the largest musculoskeletal surgery platform on the national front. With this transaction, Tenet Healthcare will become the leading provider of high-growth MSK surgeries across the care continuum.
Upon the closure of this deal, USPI’s surgical portfolio will have as many as 310 ambulatory surgical facilities, which consists of 24 surgical hospitals in 33 states. The portfolio has young facilities with average age of seven years, which have minimal facility-level debt.
It also adds to USPI’s track record of purchasing, integrating and growing SCD centers together with premier physicians.
It is expected to result in significant EPS accretion and EBITDA diversification as well as projected to realize around $40-$50 million of annual run-rate synergies over the next three years.
The company expects the deal to generate double-digit returns on invested capital within three years of its conclusion with around 28% accretion to earnings per share in 2021.
The company boasts a strong inorganic growth story. Tenet Healthcare made numerous acquisitions, partnerships and strategic alliances, aimed primarily at boosting the scale of its business, operating capacity and geographical expansions. It constantly partnered with industry biggies like Blue Cross Blue Shield of Texas, Cigna, Aetna, UnitedHealth, Humana and so on. In 2019, it acquired 10 outpatient businesses (all of which are owned by USPI) and various physician practices for $25 million. It closed the buyout of an ASC in Washington and a new surgical hospital in ASC in the Central Valley of California. All these initiatives bode well for the long haul.
Shares of this currently Zacks Rank #3 (Hold) company have gained 15% in a year’s time, outperforming its industry’s growth of 8.4%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Other companies in the same space, such as Community Health Systems Inc. CYH, HCA Healthcare Inc. HCA and Acadia Healthcare Company Inc. ACHC have also rallied 140.2%, 13.5% and 50.1%, respectively, in the same time frame.
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