- Private equity firm KKR & Co. has entered into a definitive agreement to purchase physician services company Envision Healthcare for $46 a share, a deal valued at $9.9 billion. Envision's stock on Monday opened at $44.82 per share, a 2.7% increase over the previous business day's close.
- The deal is the culmination of a seven-month strategic review that examined Envision's options, including changes to capital structure, acquisitions and continuing to operate as a standalone business. At the end of the review, its board of directors settled on the KKR proposal.
- Envision had been an acquisition target this year. UnitedHealth Group, HCA, Carlyle Group and TPG Global were all named as having an interest in the company. UnitedHealth was particularly interested in the company's ambulatory surgery business. In August, KKR purchased Envision's medical transportation arm American Medical Response in a deal valued at $2.4 billion.
The Envision deal adds to a wave of healthcare merger activity in 2018, as well as an increased interest in healthcare from private equity companies.
In 2016, Envision merged with ambulatory surgery center company Amsurg, creating a large physician-staffing company. The KKR deal adds Envision's 261 surgery centers and one surgical hospital in 35 states to KKR's portfolio.
KKR in November announced it had closed a $1.45 billion fund for the sole purpose of exploring healthcare investment opportunities. "Significant advances in medical innovation have yielded new products and services for patients, while consolidation and novel approaches to care delivery have the potential to improve clinical outcomes and reduce associated costs," Ali Satvat, KKR member and head of KKR's Health Care Strategic Growth, said in a statement at the time. "These dynamics have created a significant market opportunity and an unmet need for strategic growth capital."
Envision's strategic review began shortly after activist investor Starboard Value disclosed a stake in the company in October and called Envision an "attractive takeover target," Bloomberg reported earlier.
Investors such as KKR have been increasingly eyeing the healthcare industry, where spending is expected to grow at an average rate of 5.5% per year from 2017 to 2026 and currently accounts for 17.9% of the U.S. gross domestic product.
Activist investor campaigns have risen alongside investment firm interest.
Health IT company athenahealth recently was the target of activist investor Elliott Management. Athenahealth's board of directors is now considering an acquisition proposal from Elliott amid the resignation last week of athenahealth co-founder Jonathan Bush.
With such interest rising in healthcare companies, the industry can expect more activist campaigns as investors look to squeeze profits from an industry that traditionally is slow to change.
The Envision transaction is expected to close in the fourth quarter of this year.