Hospital Mergers Outlook Bright for 2011

Steever says many for-profit hospital companies are attracted to public hospitals because they believe they can identify and implement efficiencies that will turn a profit. They're aggressively shopping for distressed properties in a recovering economy, looking for bargains, but not necessarily fire sales. "Most private companies don't want to wait to pull the trigger until a facility has gone down that path to bankruptcy," he says. "They want a facility that is maybe eking out small margins but has the potential to turn around, maybe through the use of better purchasing or IT or different management can operate more efficiently."

Also, investors are looking for new opportunities. "A lot of private equity firms and the companies they back have been sitting on the sidelines for the past two or so years. They are not going to return the capital directly to their shareholders. They want to invest and make a profit," he says.

Steever believes that's what motivated New York-based Cerberus Capital Management LP to spend $830 million for the six-hospital Caritas Christi Health Care system in Boston, in the second largest hospital acquisition of 2010. "Caritas has been stretched for several years financially and has been actively looking for partners. More finances were needed to set right what was going on there financially and operationally to bring the hospitals back to some profitability and stability," he says. "Because they were financially challenged, Cerberus got them at a lower price than they would have been able to get four years ago when they were in a financially better position."