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Strategies & Market Trends : The New Economy and its Winners -- Ignore unavailable to you. Want to Upgrade?

To: Bill Harmond who wrote (26266)	11/14/2005 7:34:06 PM
From: stockman_scott	Respond to of 57684

Betting on the boomers _________________________________________________________ edited by John E. Morris by Luisa Beltran TheDeal.com 4, Nov 2005 Private equity investors are going gaga for the healthcare sector. But are multiples getting too high? Over the past few months several healthcare companies have sold for about 10 times Ebitda or more, including nursing home company Skilled Healthcare Group Inc., which Toronto's Onex Corp. bought for $640 million, medical device outsourcing business Accellent Inc., which Kohlberg Kravis Roberts & Co. paid $1.27 billion for, and drug and alcohol treatment centers operator CRC Health Group, which Bain Capital LLC shelled out $720 million for. Warburg Pincus and Soros Private Equity Partners LLC appear to have paid something near to that multiple, too, when they bought medical transcription company Spheris Inc., which had Ebitda of $24 million, for something north of $200 million. Driving high prices are favorable demographics — a polite reference to the millions of aging and therefore more ailing baby boomers — and the debt markets. Sponsors can in many cases borrow 6 to 7 times. But if lenders put up 7 times Ebitda, they want sponsors to ante up more equity, which is driving up prices, sources say. Still, the sector is not without risks. Healthcare providers are always at the mercy of policy makers, and changes in Medicare and Medicaid, in particular. The alternative to paying top dollar? Think small. Goldman Sachs Capital Partners, for example, recently launched a hospital platform company, Signature Hospitals, which bought three rural hospitals in Texas and Arkansas for $150 million from Triad Hospitals Inc. "We're building from the ground up," says Nat Zilkha, who led the deal for Goldman, explaining that Signature's strategy was partly a reaction to the high price tags on many healthcare companies. Signature plans include buying rural not-for-profit hospitals, which generally sell for lower multiples. Other firms have taken similar tacks. GTCR Golder Rauner LLC, for instance, launched Capella Healthcare this year with a $200 million commitment and made its first $260 million acquisition in July. And JLL Partners Inc. set up its Attentus Healthcare platform. Private equity firms are nosing around Edina, Minn.-based Intrepid USA, a home healthcare and rehabilitation provider that is in bankruptcy. It has 195 offices in 30 states and generates about $200 million in revenues and could be sold for $100 million. Still, some say the high multiples and high leverage need not be worrisome if a company's cash flow is steady. TA Associates' Jonathan Goldstein cites Bain's CRC Health investment, which has a measure of safety because substance abuse is unlikely to go away any time soon. — Lisa Gewirtz