HCA's IPO Could Bring New Investors to Hospitals

Karen Minich-Pourshadi, April 12, 2010

In a move that would signify the largest initial public offering (IPO) since Visa's 2008 offering, the Nashville-based hospital chain HCA, Inc. is allegedly preparing to raise at least $3 billion through an IPO. The move would help HCA pay off debt, according to Bloomberg news, which quoted two unnamed sources with knowledge of the matter.

So, HCA first added to their debt by going from public to private with their landmark sale four years ago; now, it looks like they may be looking to help shrink their debts (which include that sale) by going from private to public—interesting approach.

Did they have this in mind all along? It's possible. In 2007, our former Senior Finance Editor, and current Senior Leadership Editor, Phil Betbeze spoke to experts who pondered whether a shift from private to public would be in the near future. Low and behold, just a few years later it may become a reality.

Betbeze wrote that HCA has "a record of taking private what they see as an undervalued company and redeploying it to the public markets after reshaping it." HCA went private once before, in 1989, when HCA teamed up with financier Richard Rainwater for a $5.1 billion leveraged buy out at a time when the hospital was concerned about a hostile takeover.

Interestingly, the 2006 merger of private equity investors Bain Capital, Kohlberg, Kravis Roberts & Co. and Merrill Lynch Global Private Equity with HCA, Inc. cost investors $33 billion. In fact, the deal actually put the health system into debt—earning them a debt load seven times the cash flow to execute. Nonetheless, the move made HCA, Inc. the largest hospital chain in the U.S. with 163 hospitals and 105 outpatient-surgery clinics in 20 states and England.

Moreover, the IPO move is one which many financial experts say could entice new investors to invest in the hospital industry, which is now amped up with the anticipation that the recently passed health reform act may provide them with the financial shot in the arm they've been awaiting.

Why? IPOs are among the most closely followed events in the stock market, though they lost some of their shine after the frenzy of the late 1990s when sales of internet start-ups became the norm to raise millions of dollars. IPOs mark the transition of a company from a privately held to publicly held firm and if you're an investor looking to get into healthcare, the HCA IPO would be a great opportunity.

Further, the timing couldn't be better for HCA and investors, as healthcare reform will likely lower charity care and uncollectible bill losses, according to comments made by Barclays Capital analyst Adam Feinstein in a note to investors late last month. HCA plans to interview banks to underwrite the sale in the coming weeks and the sale is expected to take place later this year, according to the Bloomberg article.

So what does a sale like this mean to healthcare overall? Many financial experts are hesitant to comment on the, as yet, unannounced IPO offering. Nevertheless, you can bet your bottom dollar that if an offering like this does successfully take place, it will likely spark other facilities in similar positions to consider it as a way out of their dire straights.

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Karen Minich-Pourshadi Karen Minich-Pourshadi is a Senior Editor with HealthLeaders Media. Twitter
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