Friday, February 11, 2011

HCA Plans IPO: Bringing Wall Street to Healthcare Lane

Private equity firms celebrate 2011 with record breaking IPOs (Neilsen, KMI). The upcoming initial public offering (IPO) of Hospital Corporation of America (HCA) will yet be another record for private equity. It seems that for Wall Street, the late financial catastrophe may turn out to be the gift that keeps on giving.

HCA is the largest for-profit hospital group and fourth largest private company in the US. What could this mean for the future of US hospitals?

To revitalize the economy, the US Fed Reserve posted historically low interest rates, making it easy to take on more debt. Using cheap borrowed funds, HCA has paid out to its private investors a dividend of over $2 billion leading up to the planned $4.6 billioin IPO.  This is a sizable chunk as the private investors bought HCA with only $3.8 billion in 2006. (Source: Bloomberg)

Who are the investors? Bain Capital, KKR, and Merrill Lynch, now owned by Bank of America. The planned IPO of $4.6 billion would not only offset the recent debts, but also represent another payout to the three parties.

As a result of increased competitiveness, for-profit hospitals seem to be on the rise as mergers, acquisitions, and bankruptcies occur in the industry. The following graph below shows the percentage change in the number of hospitals by type.

Source: Mintel/Health, U.S., 2009 based on American Hospital Association Annual Survey of hospitals.

For the future of the hospital sector, I wonder if the growing for-profit trend will continue. If so, will there be more private buyouts and subsequent IPOs? The motivations of the investor/shareholder and that of the medical staff of HCA’s hospitals are obviously different. Will there be a balance for aligned incentives for all affiliated stakeholders? 

With the attention garnered by HCA’s IPO and Epocrates’ IPO last week, the deal could bring massive external interest to healthcare markets. Any type of investor can buy a stake in HCA and future public healthcare companies. The incentives of an external investor base could bring change to the relatively shielded healthcare market today.

For better or worse, perhaps the route that HCA has taken would prove the only way for hospitals to survive in the face of reform which promises less spending and more coverage.


  1. Great article, I haven't seen any news about this trend until reading your post. Healthcare is probably the next bubble - either that or education.

  2. I have a feeling we'll see more discussion on the topic in the near future.

    "Jim Cramer, host of CNBC's Mad Money, admitted Monday there is a shortage of quality healthcare stocks, but one play is recent IPO HCA Holdings Inc."

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