July 30, 2018

Apollo to acquire LifePoint Health in $5.6B deal

Daily Briefing

    Read Advisory Board's take on this story.

    Apollo Global Management on Monday announced it intends to purchase the rural hospital chain LifePoint Health in a $5.6 billion deal that will expand the private equity firm's U.S. rural hospitals business.

    The deal is subject to regulatory approval as well as approval from LifePoint shareholders. The companies expect the transaction will close within a few months.

    The deal comes as health care providers in rural communities are increasingly seeing smaller margins as a result of fewer patient admissions, higher medical costs, and new Medicaid and Medicare reimbursement policies, according to Reuters.

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    About the deal

    Under the deal, Apollo would combine LifePoint with Apollo's system operator, RCCH Healthcare Partners, to form a health care provider with more than 12,000 licensed beds, over $8 billion in pro forma 2017 revenues, and 7,000 affiliated physicians. RCCH Healthcare Partners and LifePoint would operate as LifePoint under the current LifePoint Chair and CEO William Carpenter.

    The combined company would operate a diversified portfolio of health care assets, including 84 non-urban hospitals in 30 states, outpatient centers, physician practices, post-acute service providers, regional health systems, according to Apollo and LifePoint. The combined company would have leading market positions as the only community health care provider in a majority of the regions it would serve, Apollo and LifePoint said in a statement.

    Currently, LifePoint operates community hospitals, regional health systems, and post-acute care facilities in 22 states.

    The deal to purchase LifePoint—includes $2.9 billion in LifePoint's net debt and minority interest as well as $65 per share in cash for LifePoint shareholders. According to Apollo and LifePoint, "[t]he purchase price represents a premium of approximately 36% to LifePoint's closing share price on July 20, 2018, the last trading day prior to the announcement."

    LifePoint's board of directors unanimously approved a definitive agreement to combine RCC Healthcare and LifePoint. However, LifePoint said it will continue to accept competing offers until Aug. 22, Reuters reports.

    Comments

    Matthew Nord, a senior partner at Apollo, in a statement said, "We are excited that LifePoint and RCCH are combining to create a national leader in community-based health care, and are looking forward to the next chapter of the combined company's growth."

    RCCH Chair and CEO Martin Rash said, "The opportunity to join with LifePoint marks a significant milestone in RCCH's history. 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."

    Carpenter said, "LifePoint and RCCH are aligned in our missions and commitment to ensuring that non-urban communities across the country have access to quality care, close to home." He added, "Together, we can extend this shared focus while generating new opportunities for growth and partnerships that will help us navigate the changing health care industry dynamics" (AP/Sacramento Bee, 7/23; Mathias, Reuters, 7/23; Jones Sanborn, Healthcare Finance News, 7/23; Abraham, Healthcare Dive, 7/23; Apollo release, 7/23; LifePoint release, 7/23).

    Advisory Board's take

    Christopher Kerns, Executive Director

    We believe the LifePoint-RCCH deal could have significant implications on the US health care system, as the merged system of LifePoint and RCCH HealthCare Partners means the creation of a new multi-billion-dollar player within the for-profit healthcare space—one with a significant amount of financial and operational flexibility.

    The decision by LifePoint to seek a deal with Apollo, a private-equity firm, shows the value that private equity can have within the health care space. Given what we know of the deal, working with Apollo will give LifePoint the running room to make difficult financial decisions away from the quarterly earnings requirements of a publicly-traded company.  And given that the demands of the rural hospital business can be particularly challenging, this greater flexibility will likely help LifePoint operate more nimbly and sustainably in the future.

    This deal is also almost certainly indicative of the increase in demand among health care players to build out cost-effective ambulatory capacities in more rural regions. The infusion of capital from Apollo would provide LifePoint greater leverage in developing that footprint.

    We hope you'll join my colleagues on August 29th where you can learn more about vertical integration and how mega-mergers could impact your organization. Make sure to register for the webconference today and read their new research report on vertical integration and the potential impacts, opportunities and defensive strategies for providers.

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