Industry analysts last week evaluated the potential sale of publicly owned Psychiatric Solutions, calling the company a strong buyout candidate and saying a deal could trigger additional acquisition activity in the behavioral health segment.
Weighing a sale
Psychiatric Solutions deal could set off more
On March 10, Franklin, Tenn.-based Psychiatric Solutions said it had been approached by third parties about a possible acquisition and had formed a special committee of the board of directors to consider possible responses. Also, the company said it retained Goldman, Sachs & Co. and Shearman & Sterling as its financial and legal advisers, respectively.
“There can be no assurance that any transaction for a purchase of PSI will take place,” Psychiatric Solutions said in a news release. “PSI does not expect to make further public comments regarding these matters unless and until it enters into a definitive agreement with respect to a transaction or determines that none will be pursued.”
One of the behavioral health segment's largest operators, Psychiatric Solutions reported total revenue of $1.81 billion and net income of $117.6 million for the year ended Dec. 31, 2009, compared with total revenue of about $1.7 billion and net income of $104.9 million for the same period in 2008. By comparison, Universal Health Services—which has its behavioral health segment in Brentwood, Tenn.—reported net revenue of about $1.32 billion for its behavioral health segment in 2009.
In a research note, Kemp Dolliver, a managing director in the Boston office of Nashville-based Avondale Partners, said the announcement is “not entirely surprising,” and that Psychiatric Solutions would be a logical fit in the portfolio for private equity firm Bain Capital, which has been cited in news reports as a potential suitor.
“Bain's ownership of for-profit hospital company HCA is well-known,” Dolliver wrote. “Less widely reported is Bain's ownership of CRC Health Group, which operates residential treatment centers and competes with” Psychiatric Solutions.
Dolliver's note also said it's “entirely possible that Bain sees potential synergies” with CRC, HCA or Psychiatric Solutions.
While there could be an agreement with Bain, Psychiatric Solutions' board members may opt for a “go shop” period that could generate competing offers, according to Darren Lehrich, managing director at Deutsche Bank Securities.
“It may create some acquisition opportunities for their competitors, whether it's UHS or some smaller chains” such as Acadia Healthcare, Behavioral Centers of America and Haven Behavioral Healthcare, Lehrich said.
Lehrich also mentioned the uncertainty surrounding HCA expanding its interest in behavioral health. Last fall, HCA hired Terry Bridges, formerly the co-chief operating officer at Psychiatric Solutions, to be the company's vice president of behavioral health. Lehrich said that move highlights that the company is serious about building a management team in behavioral health.
“If HCA is seriously contemplating a bigger exposure in the behavioral sector, might this situation provide them with an opportunity?” Lehrich said. “We're just not sure.”
Send us a letter
Have an opinion about this story? Click here to submit a Letter to the Editor, and we may publish it in print.