The purchase by Blackstone Group LP raises the bar for emergency medicine group acquisitions.
TeamHealth Holdings Inc., the Knoxville, Tennessee-based hospital staffing giant, agreed on October 31 to be purchased by Blackstone Group LP, a private equity firm with $360 billion in assets under management. Under the terms of the $6.1 billion deal, which received unanimous approval from TeamHealth’s board of directors, the company’s shareholders will receive $43.50 per share in cash for a total equity value of about $3.2 billion. This represents a 33 percent premium to TeamHealth’s closing stock price October 3, the day before news first broke that negotiations were under way.
“We are pleased to reach this agreement with Blackstone, which maximizes value for all TeamHealth
stockholders,” said Leif Murphy, TeamHealth’s President and CEO, in a press release. “Blackstone is focused on working closely with TeamHealth to achieve our strategic objectives and drive innovation and operational excellence in the context of the evolving U.S. healthcare marketplace. We continue to believe that TeamHealth is uniquely positioned to leverage our national scale and functional expertise to drive high quality patient care, operational efficiencies and physician satisfaction in hospital-based and post-acute settings.”
The two companies are no strangers to one another: Blackstone acquired TeamHealth in 2005 and took it public four years later.
Initially founded by two emergency physicians, TeamHealth’s early focus was predominantly on ED and urgent care staffing. Growth has been strong following the company’s 2009 IPO. Employment more than tripled and the company expanded its reach into new areas like ambulatory care, anesthesiology and hospital medicine.
The U.S. physician services industry has seen rapid, widespread consolidation during the Obama Administration due at least in part to rising administrative costs associated with the Patient Protection and Affordable Care Act. To take advantage of Medicare’s bundled payment initiative, providers also have a strong incentive to better coordinate the care they deliver and bundle as much of a patient’s charges into one bill. Industry leaders have taken strategic steps to be involved at all levels of a patient’s treatment, from their ED admission and inpatient care all the way to rehabilitation and post-acute care. Instead of starting from scratch, many providers opt to acquire smaller businesses with a proven track record.
According to Bloomberg, TeamHealth has made over three-dozen such tuck-in acquisitions since going public. As the company grew, its stock price and revenues followed suit and for several years business was good.
Flash forward to August 2015. TeamHealth purchased IPC Healthcare in a $1.6 billion deal that was meant to give the company a larger footprint in the nursing home and long-term care industries. The purchase also allowed TeamHealth to bundle its services and establish a more dominant presence across the entire healthcare landscape, from acute care, anesthesia and hospital medicine to post-acute and long-term care. Though strategically sound, the deal added substantially to TeamHealth’s outstanding debt ($2.47 billion as of June 30) and posed serious integration challenges.
It wasn’t long before an even bigger player came knocking and made a formal offer to buy TeamHealth. AmSurg, which operates surgical centers across the country, made two separate cash-and-stock offerings of around $69 per share with a total value in the neighborhood of $7.6 billion. Such a merger would have created one of the largest publically traded health services companies in the United States. TeamHealth ultimately rebuffed, claiming the proposed valuation was too low. Many shareholders were incredulous, and the company’s share price tumbled.
Earlier this year the activist investor Jana Partners disclosed an eight percent stake in the company and moved to secure three board seats, citing “missteps in critical areas including capital allocation, strategy and governance.” TeamHealth has since brought in a new chief executive, and Jana has agreed to vote in favor of the Blackstone deal, which is expected to close in the first quarter of 2017.
AmSurg went on to merge with Envision Healthcare, leaving TeamHealth with even fewer strategic growth options in an industry landscape that’s growing smaller by the day. Still, there are reasons to be optimistic. After all, TeamHealth did well under Blackstone’s management in the early 2000s. There’s also reason to think that revenues may improve once IPC is fully integrated.
History has a way of repeating itself. Bloomberg sources speculate a now bigger AmSurg may come back and make another offer….