Coverage: Apollo Capital is buying hospital company LifePoint for $5.6B

Private equity firm Apollo Global Management will spend about $5.6 billion to buy the rural hospital chain LifePoint and combine it with health system operator RCCH HealthCare Partners.

Jamie McGee of The Tennessean had the news:

LifePoint shareholders will receive $65 in cash for each share in a deal that’s worth about $2.7 billion not counting net debt and minority interest, the companies said.

That’s a premium of nearly 36 percent to LifePoint Health Inc.’s closing price July 20. That was the last trading day before the deal announcement.

LifePoint has operations in 22 states, including community hospitals and regional health systems.The hospital company employs about 600 people in Middle Tennessee.

“It is exciting when the city can have companies that grow together like this,” Hayley Hovious, president of the Nashville Health Care Council said. “For Nashvillle, long term, it just gives us larger companies with greater scale.”

The combined, privately held company will operate under the LifePoint name and be led by the hospital chain’s chairman and CEO, William F. Carpenter III. It will run 84 hospitals in 30 states as well as physician practices, outpatient centers and regional health systems.

Eric Snyder of the Nashville Business Journal reported that the two companies combined had $8 billion in revenue in 2017:

LifePoint and RCCH have combined 2017 revenue of more than $8 billion, with 7,000 affiliated physicians, 60,000 employees and more than 12,000 licensed beds. Following their merger, the company will operate 84 non-urban hospitals in 30 states, in addition to outpatient centers, post-acute service providers and more.

“The opportunity to join with LifePoint marks a significant milestone in RCCH’s history,” Marty Rash, chairman and CEO of RCCH, said in the news release. “The size, scale and focus on growth for the new organization will be impactful for our patients, employees and partners. I am thrilled that these two great companies are coming together.”

Under terms of the deal, LifePoint shareholders will receive $65 per share in cash, a 36 percent premium compared to the stock’s closing price on July 20. According to the release, the deal is valued at approximately $5.6 billion, including debt and minority interest.

Joshua Franklin and Carl O’Donnell of Reuters reported that rural health care companies have faced challenges:

Rural healthcare providers such as LifePoint have been challenged in recent years because their reliance on federal insurers such as Medicare and Medicaid has made them particularly vulnerable to changing reimbursement programs. In addition, hospital operating costs have been rising faster than reimbursement rate increases.

Nevertheless, LifePoint has been a relatively strong performer in the rural healthcare space, buying up underperforming facilities and streamlining operations through targeted investments, according to Morningstar Inc analysts.

LifePoint shares, however, have remained under pressure, losing around a quarter of their value in the past 12 months.