Morningstar | LifePoint Going Private? Rumors Suggest a Sale to Apollo Could Be Near
After market close on July 20, Reuters reported that no-moat LifePoint Health is in advanced talks to be acquired by private equity firm Apollo Global Management. This would be the latest healthcare provider to garner interest from private equity after KKR & Co. announced its intent to acquire Envision Healthcare earlier this year. The offer is rumored to value LifePoint at a $6 billion enterprise value, or over $80 per share in equity value, a sizable premium to our $58 per share fair value estimate and over 70% ahead of Friday's close. If a deal were to come to fruition, it would value the company at roughly 8 times our estimate of 2018 adjusted EBITDA, a peak valuation for the firm based on its trading history over the past decade and in line with our bull-case valuation scenario. While the market appears confident in a deal getting done, with the stock up nearly 40% in afterhours trading, we intend to retain our fair value estimate until more concrete evidence of a sale emerges.Apollo's interest is unsurprising, given its history in the healthcare provider arena, with the firm having purchased rural hospital operator RegionalCare Hospital Partners in 2015 and Capella Healthcare in 2016. We'd expect Apollo to continue LifePoint's strategy of squeezing out cost efficiencies by rolling up the highly fragmented community hospital industry, combining the 16 existing facilities in its portfolio with LifePoint's 68 hospitals. That said, the expected valuation looks relatively full to us, and LifePoint's debt balance above 4 times EBITDA leaves little room for additional leverage to amplify the sponsor's financial returns.
The performance of LifePoint's stock has languished over the past few years following missteps in integrating acquired facilities, which likely makes a go-private offer compelling for both management and shareholders. Additionally, insiders' combined 9% stake in the company creates further incentive to pursue a sale, in our view.
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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