Just seven months ago, Universal Health Services said that a sale or spinoff of some of its behavioral health facilities was a possibility because the company's executives believed that investors were undervaluing those facilities. The possibility of a divestiture was just one option, but it's the one that drew the most attention (March 7, p. 18).
Last week, Universal did the opposite and announced that it completed two psychiatric acquisitions. And, in an interview, Chief Financial Officer Steve Filton said that the King of Prussia, Pa.-based company is looking for more purchases in behavioral health because prices are much more reasonable in that sector than in acute-care hospitals.
The company also said it nearly doubled its stock buyback program, authorizing the repurchase of up to 2 million shares, on top of a previously authorized 2.1 million-share buyback. Buying back its own stock was another strategic option the company had discussed in March.
In the larger of the two acquisitions announced last week, Universal said it paid $207 million in cash for the stock of Keys Group Holdings, including Keystone Education and Youth Services, a Nashville-based provider of youth psychiatric services.
The acquisition included 21 residential treatment facilities with 1,280 beds, 21 private therapeutic day schools and four detention facilities. The facilities are expected to generate $165 million in annual revenue. Universal also acquired four therapeutic boarding schools and an outdoor intervention program out of the bankruptcy of Brown Schools, Austin, Texas, for undisclosed terms.
The acquisitions give Universal 95 psychiatric facilities, in addition to its 24 acute-care hospitals.
Filton said the Keystone acquisition expands the services that Universal's behavioral division offers by adding the day-school option. Day schools complement the residential treatment facilities that Universal offers, Filton said.
"Each program has a different niche," he said. "We've always found that having a spectrum of behavioral services, from residential to acute, provides referrals."
Behavioral health acquisitions provide better value because there are far fewer bidders than when an acute-care hospital is for sale, Filton said.
Filton said the acquisitions aren't the only Universal investment in behavioral health, since about one-third of its facilities are undergoing expansions.