A Reuters report has sparked rumors of the potential sale of Franklin, Tenn.-based Capella Healthcare by private equity firm GTCR. Citing sources close to the matter, Reuters reports GTCR has hired Bank of America Merrill Lynch to seek a buyer for Capella and has been in conversations with several larger hospital operators about a possible acquisition.
Capella has experienced financial trouble recently, posting a loss of $5.6 million in the second quarter of 2013 — the fifth quarter in a row the company has reported a loss. Inpatient admissions and surgeries are down across Capella's hospitals. In 2012, the company posted an EBITDA of $105.2 million.
According to the Reuters report, GTCR may value the hospital operator at close to $1 billion, a valuation that may seem high but appropriate for the current market, says Adam Lynch, vice president of Principle Valuation, a Chicago-based valuation firm.
"We've seen a lot of this activity recently in larger systems,” says Mr. Lynch, citing the Tenet-Vanguard acquisition and the pending merger between Franklin, Tenn.-based Community Health Systems and Naples, Fla.-based Health Management Associates.
"In terms of value, Capella does have significant strengths as compared to a one-site operator," says Mr. Lynch. "And the result of that is the potential value is going to be a little higher."
A major asset Capella has is its size. "The fact the company has a net [annual] revenue of $750 million, much larger than the average single-site hospital in a transaction like this, is important" when considering a higher valuation, says Mr. Lynch.
Capella's diversification also adds to its value. The operator's foray into more rural areas and presence in six states "is a unique asset" and would make the company more valuable to a potential buyer, says Mr. Lynch.
Lastly, the company’s current EBITDA margin of about 14 percent is fairly average in the industry, says Mr. Lynch. However, there is the possibility of additional efficiencies to be realized through a for-profit merger or acquisition, and that opportunity can afford the company a higher valuation.
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