Deals

Gillian Tan is a Bloomberg Gadfly columnist covering deals and private equity. She previously was a reporter for the Wall Street Journal. She is a qualified chartered accountant.

Blackstone Group has come back for a second bite of the apple.

Seven years since it took Team Health Holdings Inc. public, the New York firm is reversing course: On Monday, it announced a deal to take the provider of physician-outsourcing services private in a transaction valued at $6.1 billion, including debt.

Transformed
Team Health has grown significantly since Blackstone last had control. At the time of its 2009 IPO, its team comprised roughly 6,100 professionals, versus more than 19,000 today. Earnings have followed suit.
Source: Bloomberg

As my colleague Brooke Sutherland has written, a Team Health buyout isn't a bad option for shareholders who have stood by while its shares were pummeled following operational challenges and integration hiccups related to its pricey $1.6 billion purchase of rival IPC Healthcare. They're also still smarting from Team Health's rejection last year of takeover offers from rival AmSurg at what would have been a much higher price.  

Blackstone's $43.50 a share offer represents a 37 percent discount to the spurned AmSurg bid, yet it garnered the support of Team Health's board, which itself may be amenable to the approach due to the presence of activist investor Jana Partners, which has two board seats. The price is about a third higher than where Team Health traded earlier this month before news of its possible sale, so that's something.  

Better Than Nothing
Jana Partners and other Team Health shareholders including Sachem Head and Corvex, which have only owned the stock since the first quarter, aren't making notable profits from its buyout by Blackstone
Source: Bloomberg

Although there's a 40-day "go-shop" period for Team Health to seek other offers, they're unlikely to be forthcoming. AmSurg has its hands full wrapping up the purchase -- and subsequent integration -- of Envision Healthcare, the target it turned to after getting rebuffed by Team Health. And other would-be private equity suitors will likely struggle to line up the $3 billion or so in equity commitments required for the deal, in part because capable and willing co-investors (such as pension funds and sovereign wealth funds) will have already been canvassed by Blackstone. 

Under Blackstone's watch, Team Health can continue its integration of IPC without the quarterly scrutiny of public investors. It can also maintain its position as a consolidator within its fragmented industry by making additional tuck-in acquisitions. Should the opportunity arise to strike a larger purchase than Team Health can manage on its own (the company's debt load of $2.4 billion, or 4.8 times its 2016 Ebitda, will likely rise following the buyout), Blackstone would also have the option of putting a little more of its dry powder pile to work. 

Analysts at Robert W. Baird & Co. estimate that if Team Health spends some $3.2 billion on deals over the next five years, it could double its Ebitda to $1 billion if the company's existing operations maintain a respectable growth rate. Even before then, AmSurg may be ready to pay Team Health a second visit of its own, at a price that makes Blackstone's efforts worth its while. 

Peter Grauer, chairman of Bloomberg LP, the parent of Bloomberg News, is a non-executive director at Blackstone.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

  1. Jana is poised to make $26.5 million in profits from this particular campaign, or an annualized 9.2 percent if it holds the position all the way through to the transaction's close, estimated for the first quarter of 2017. It's a respectable, if modest, windfall, but a deal in hand is better than none. 

     

To contact the author of this story:
Gillian Tan in New York at gtan129@bloomberg.net

To contact the editor responsible for this story:
Beth Williams at bewilliams@bloomberg.net