HealthSouth Corp., the nation's largest provider of rehabilitation services, increased its outpatient surgery center holdings by 20% last week with a deal to acquire 34 centers from Columbia/HCA Healthcare Corp. for a whopping $550 million in cash.
When the deal closes, which is expected to be in the third quarter, Birmingham, Ala.-based HealthSouth will operate 212 surgery centers in 33 states. The 34 centers to be acquired are in 13 states, including five states in which the company didn't operate any.
HealthSouth wanted the centers because they will provide an instant positive impact to its bottom line, adding $65 million in annual earnings before interest, taxes, depreciation and amortization.
For Nashville-based Columbia, the sale is a key component of its downsizing strategy, which also includes divesting one-third of its acute-care hospitals and its home-care business.
The sale will leave Columbia with 114 surgery centers. They are likely to be spun off with the targeted hospital divestitures in three new companies.
"The majority of the surgery centers (being sold) are either in an area where we don't have any hospitals or won't have any in the future," Columbia spokesman Jeff Prescott said. "There are some surgery centers that will go with some of the hospital spinoffs. Twenty are expected to go in the spinoff groups, but that could change."
The price HealthSouth is paying for the 34 outpatient surgery centers is considered high by financial analysts. The $550 million is more than eight times the annual $65 million in profits generated by the centers. Individual centers sell for between three and six times earnings, analysts say.
The companies declined to say if there were other bidders.
"(The price) is certainly high, but acquisitions of a scale like this one are going to go for higher multiples," said Peter Emch, a healthcare analyst with BT Alex. Brown in Baltimore.
"We wanted these, and we are getting them," said HealthSouth Chairman and Chief Executive Officer Richard Scrushy. He appeared willing to pay an even higher premium to get the centers.
"The $65 million in profits is huge," Scrushy said. "That's a lot of money. These are very lucrative centers."
In 1996 HealthSouth acquired Surgical Care Affiliates, which owned 67 surgery centers, for $1.2 billion in stock. Two years earlier, Columbia acquired Medical Care America, which had 96 surgery centers, in an $858 million stock swap.
Neither Columbia nor HealthSouth would disclose the annual revenues of the 34 facilities.