- Struggling for-profit hospital operator Quorum Health is considering going private for $1 a share with private equity giant KKR.
- KKR is currently the largest holder of the Brentwood, Tennessee-based provider's debt, owning almost 25% or 8.1 million shares of its common stock. The PE firm proposed a transaction Monday that includes buying out the public shares held by Quorum's minority holders, extending the maturity of Quorum's senior secured credit facility and raising new equity from participating noteholders.
- Quorum's board of directors said it will "carefully consider" KKR's offer.
Private equity has become more active in the healthcare industry over the past decade, particularly in lucrative specialty areas like orthopaedics, dermatology, mental health and addiction treatment. For health systems struggling with flattening reimbursement and admissions, the influx of outside cash can be a welcome lifeline — especially for rural systems like Quorum, which operates across 14 states in rural and midsized markets.
Healthcare accounts for roughly 13% of all private equity buyouts, according to Prequin, an industry research firm. One of the largest recent deals was KKR's $10 billion acquisition of physician service company Envision Healthcare last year.
The 2,038-bed Quorum went public in May 2016 after spinning off from hospital giant Community Health Systems. KKR snapped up a 5.6% stake in the system in 2017 for $11.3 million and has been in talks with the system to evaluate a potential transaction to take Quorum private for some time, according to the letter filed with the SEC on Monday.
"As a result of those discussions and the comprehensive review of the information provided to date, KKR believes that the value-maximizing path for the Company, including the enterprise as a whole, along with all stakeholders, is through a recapitalization," Harlan Cherniak, co-head of Americas Special Solutions for KKR, wrote in the letter to Quorum.
"KKR believes that a comprehensive solution will facilitate long term success and mitigate any further distraction. Given our diligence, experience and history with the Company, we can move toward a definitive transaction in an expeditious manner," Cherniak said.
Quorum's financials have been on the downslide since its inception. Most recently, it missed Wall Street earnings expectations in the third quarter, though the system reported higher-than-expected revenue of $420 million — still down almost 9% year over year. CEO Bob Fish acknowledged "soft results" on a November call with investors, chalking up the disappointing quarter to problems with revenue cycle management and timing with taxes.
Despite a net loss of almost $76 million, Quorum did see some positive trends in the quarter, including a year-over-year increase in adjusted admissions for the first time in a year and a half, and continued strengthening of patient acuity.
Quorum plans to continue its divestiture strategy well into 2020, sloughing off hospitals to reduce its considerable debt. The operator started in 2016 with 38 hospitals, closed off the third quarter this year with 24 and is working on four more potential divestitures that could go through by the first quarter of next year.
New York-based KKR, which has offices in nine cities in eight countries, was formed in 1976. The company's most recent acquisition was of a military contractor late last month.
KKR has invested in more than a dozen healthcare companies since it formed a healthcare growth equity effort in 2014, including several medical device manufacturers, biopharmaceutical and biosimilar companies, health IT platforms and a pediatrics group specializing in autism.