Tenet Healthcare Corp. announced Thursday it plans to acquire up to 45 ambulatory surgery centers from SurgCenter Development in a deal that's estimated to cost $1.1 billion.
The transaction is expected to grow for-profit Tenet's ambulatory surgery portfolio to 310 facilities in 33 states and greatly expand its musculoskeletal surgery offerings, with about 80% of the acquired centers performing orthopedics, pain and spine procedures. Tenet said it will be a "leading provider" of the highly profitable musculoskeletal surgery space following the transaction.
The Dallas-based hospital chain has previously acquired ambulatory surgery centers from SurgCenter, a developer involved in the construction of more than 200 centers in 26 states.
Tenet's ambulatory surgery center subsidiary United Surgical Partners International will operate the centers. Brett Brodnax, USPI's CEO, called the relationship with SurgCenter "longstanding and successful."
Under the deal, Tenet will own a majority interest in all but two of the centers and the remainder will be owned by physician partners. The 45 centers involve about 800 physicians on staff. The centers are in nine states including newer markets for Tenet: Maryland, Indiana and Ohio.
"This is a transformative transaction within our stated strategy to expand our ambulatory platform," said Ron Rittenmeyer, Tenet's chairman and CEO. "It will enhance our overall business mix and further diversify our earnings profile by accelerating our shift toward lower cost of care, consumer-friendly, faster-growing assets for Tenet, United Surgical Partners International and our physician and health system partners."
Tenet said it has already completed the purchase of most of the 45 centers and expects to own all of them by the end of 2020 pending certain state approvals and documentation.
Tenet will pay for the $1.1 billion deal in cash. Tenet said it expects the deal will generate double-digit returns on investment within three years. The purchase is also expected to shift Tenet's adjusted EBITDA to about 42% from the ambulatory business, a big increase compared to 2014 when ambulatory care accounted for 4% of adjusted EBITA. Tenet's acquisition of United Surgical Partners International has also contributed to the shift.
The announcement has spiked Tenet's shares by nearly 18% to $41.16 as of Thursday afternoon.
Tenet reported a challenged third quarter as it dealt with a surge of COVID-19 patients. Tenet reported a net loss from continuing operations attributable to shareholders of $197 million in the quarter ended Sept. 30, down from a $227 million net loss in the prior-year period. Tenet's $4.6 billion in net operating revenue in the quarter was effectively flat year-over-year. Expenses declined by just under 1% year-over-year to $4.3 billion.