Class of 2018 | suyh@wharton.upenn.edu
On October 31st, TeamHealth agreed to be acquired by Blackstone for $43.5 per share. The offer represents a 33% premium since the board announced on October 3rd that it was exploring the possibility of selling the company to a private equity firm. On the day of the announcement, shares of TeamHealth jumped by 15%. Blackstone’s offer placed TeamHealth’s equity value at $3.2 billion. As of June 30th, the TeamHealth had $2.47 billion in debt outstanding. Based in Knoxville, Tennessee, TeamHealth is a U.S hospital staffing provider that offers outsourced health-care services ranging from emergency care to hospital medicine. For over a decade, TeamHealth was a private company owned by various private equity shops including Blackstone. In 2005, Blackstone bought a $1 billion stake in the physical outsourcing services provider. In 2009, TeamHealth had an initial public offering and became a publicly traded company.
In November of last year, AmSurg, a leading surgery center management company, placed a bid for TeamHealth. The offer was a cash-stock bid that valued TeamHealth at $71.47 per share. At the time, many believed that the only reason TeamHealth’s stock price was unaffected by the decline in the hospital and emergency service sectors was due to the pending deal it had with AmSurg. From a macro-level perspective, there is much consolidation occurring in the healthcare industry. As a result of the increasing administrative costs caused by the Affordable Healthcare Act, many companies in the physician services industry are finding it harder to stay competitive. Nevertheless, the board members of TeamHealth turned down the offer since they believed it was too low and the firm already had plans on acquiring IPC Healthcare, another outsourced medical service provider, to combat the growing consolidation within the industry. When the dust settled, AmSurg’s stock surged 6.3%, while TeamHealth’s stock fell by 3.8%. On August 4th, 2015, TeamHealth acquired IPC Healthcare for $1.6 billion in an all cash deal that resulted in a 37% premium for IPC Healthcare’s shareholders. Unfortunately, TeamHealth had reportedly ran into some integration issues and had to substantially increase its leverage to finance the acquisition.
As a result of its poor performance, TeamHealth had been targeted by activist hedge funds, most notably Jana Partners LLC. Three months after TeamHealth rejected AmSurg’s proposal, Jana Partners bought 5.9 million shares resulting in an 8% ownership stake in the struggling company. The $231 million investment made Jana Partners the second largest shareholder of TeamHealth. On March 23rd, in order to prevent a proxy fight, TeamHealth placed three directors nominated by the activist fund on its board. One can safely infer that the directors appointed by Jana Partners played a pivotal role in encouraging the company to go private this October.
Almost a year after TeamHealth’s deal with AmSurg fell through, Blackstone placed a bid for the health-care service provider. Blackstone’s offer, including debt, is only $6.1 billion compared to AmSurg’s offer of nearly $8 billion. From Blackstone’s perspective, it was able to buy the hospital staffing provider for a discount compared to AmSurg’s bid. Nevertheless, it is important to note that private equity firms usually acquire companies at a relatively lower price compared to companies undergoing an M&A transaction. The primary rationale behind this rule is that private equity firms do not need to price in synergies when acquiring companies, unless they plan on merging the target firm with an existing company in their portfolio. Goldman Sachs was the lead financial advisor, whereas Citi was the co-financial advisor to TeamHealth. On the other side, Bank of America provided Blackstone with financial advice during the deal negotiations. The deal is predicted to close in the first quarter of 2017. As a privately held company, TeamHealth could potentially cope with the rising consolidation in the healthcare industry.