Morningstar | LifePoint Going Private in $5.6 Billion Transaction With Apollo Global Management
On July 23, LifePoint management announced it had reached an agreement with Apollo Global Management to be taken private and merged with Apollo's 16 rural hospitals owned through RCCH HealthCare Partners. The deal values no-moat LifePoint at $65 per share, paid in cash to shareholders. This puts LifePoint's enterprise value at near $5.6 billion, somewhat short of the $6 billion figure rumored on July 20. We think this represents a fair deal for shareholders, who would be receiving a 12% premium to our existing $58 fair value estimate and a 36% premium to the July 20 close. We intend to raise our fair value estimate to $65 to reflect our high level of confidence that the transaction is likely to close over the coming months.At an enterprise value of $5.6 billion, Apollo is acquiring the company at approximately 7.5 times our estimate of 2018 EBITDA. We view this as much more reasonable than the $6 billion, or valuation near 8 times EBITDA, figure floated in the press on July 20. Under the terms of the agreement with Apollo, the LifePoint board has until Aug. 22 to shop the company to alternative buyers to garner the most compelling proposal for the firm's stakeholders. We believe the board will be hard-pressed to find a superior offer in the next 30 days, and we expect this deal to ultimately close as currently structured.
We think LifePoint's operating model is well suited for life under private-equity ownership and anticipate that the combined entity, led by LifePoint CEO William Carpenter, will continue consolidating the community hospital industry over time. Management is likely keen on leaving the public's view, after stumbles related to acquisition integration consumed much of the narrative surrounding the company over the past year or two . We applaud management and the board for negotiating a fair transaction for shareholders amid these concerns among others, such as ongoing admissions declines and uncertainty related to the future of healthcare reform.
LifePoint Health owns and operates community hospitals, regional health systems, physician practices, outpatient centers, and post-acute facilities. At Dec 31 2017, the company operated 71 hospital campuses in 22 states throughout the U.S., having a total of 9,254 licensed beds. The company's hospitals provide medical and surgical services commonly available in hospitals in non-urban markets. These services include general surgery, internal medicine, obstetrics, emergency room care, radiology, oncology, pediatric services, and, in some of the company's hospitals, specialized services such as open-heart surgery, nursing, psychiatric care and neuro-surgery. In several markets, the company also provides outpatient services.
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