Market Overview

LifePoint Confirms Sale To Apollo's RCCH, But Analysts Aren't Too Enthusiastic

Share:
LifePoint Confirms Sale To Apollo's RCCH, But Analysts Aren't Too Enthusiastic
Related LPNT
Earnings Scheduled For July 27, 2018
Benzinga's Top Upgrades, Downgrades For July 24, 2018

LifePoint Health Inc (NASDAQ: LPNT) announced Monday its $5.6-billion sale to Apollo Global Management LLC (NYSE: APO)’s RCCH Healthcare Partners.

The buyout price, $400 million less than what Reuters had reported Friday, represents a 36-percent premium to LifePoint’s Friday closing price.

Shares were up more than 30 percent to $64.12 at time of publication.

What Analysts Think Of The Deal

The combined entity, which boasts consolidated 2017 revenue above $8 billion, will oversee about 7,000 physicians and 12,000 licensed beds. Bank of America Merrill Lynch considers the asset aggregation sensible.

“We believe that LPNT makes some sense as a leveraged buyout (LBO) as it could create some opportunity to sell assets and cut costs,” analysts wrote in a note. “Meanwhile, Apollo could potentially create some synergies that other buyers could not by merging LPNT with its current non-urban hospital operations.”

Cantor Fitzgerald added that the proposal could drive LifePoint’s enterprise value-to-earnings before interest, tax, appreciation and amortization (EV/EBITDA) multiple closer to that of the group-leading HCA Healthcare Inc (NYSE: HCA).

However, BMO Capital emphasized the implied upside signals a multiple 6.3 times the analysts’ 2019 EBITDA forecast — lower than that of other recently acquired hospital companies. Community Health Systems (NYSE: CYH) bought Health Management Associates at an 8 times multiple, while Tenet Healthcare Corp (NYSE: THC) bought Vanguard Health Systems at a 7.2 times multiple.

BMO attributed LifePoint’s lower ratio to its exposure to the tough rural hospital market, as well as lacking optimism the other deals gleaned from the Affordable Care Act.

Considering the circumstances, BMO maintained a Market Perform rating on the stock with a $51 target; Bank of America maintained an Underperform rating with a $50 target; and Cantor Fitzgerald maintained a Neutral rating and $45 target.

What It Means For The Sector

Bank of America doesn't see read-through for most health care peers, but Cantor Fitzgerald anticipates improved group sentiment driving deeper rotation into hospitals.

“We also believe that more attention to the group will highlight that, as primarily domestic companies, hospitals benefit more than average from tax reform,” the latter wrote. “They are also largely unaffected by tariff and trade uncertainties that are weighing on the market.”

The transaction has been unanimously approved by LifePoint’s board and is expected to close over the next several months, although LifePoint can actively pursue alternative proposals through Aug. 21.

Upon shareholder and regulatory approval, the company will operate under the LifePoint Health name.

LifePoint will report quarterly earnings July 27.

Related Links:

Jefferies Downgrades Tenet As It Approaches Full Health

Morgan Stanley: Health Care M&A Means Headwinds For Hospitals

Latest Ratings for LPNT

DateFirmActionFromTo
Jul 2018Credit SuisseMaintainsNeutralNeutral
Jul 2018BMO CapitalMaintainsMarket PerformMarket Perform
Jul 2018BairdDowngradesOutperformNeutral

View More Analyst Ratings for LPNT
View the Latest Analyst Ratings

Posted-In: Affordable Care ActAnalyst Color News Health Care M&A Top Stories Analyst Ratings General Best of Benzinga

 

Related Articles (APO + CYH)

View Comments and Join the Discussion!
Don't Miss Out!
Join Our Newsletter
Subscribe to:
Market in 5 Minutes
Everything you need to know about the market - quick & easy.
Daily Analyst Rating
A summary of each day’s top rating changes from sell-side analysts on the street.
Fintech Focus
Your weekly roundup of hot topics in the exciting world of fintech.
Thank You
for registering for Benzinga’s newsletters and alerts.
• The Daily Analysts Ratings email will be received daily between 7am and 10am.
• The Market in 5 Minutes email will be received daily between 7am and 8am.
• The Fintech Focus email will be received every Friday between 2pm and 5pm.

Mid-Morning Market Update: Markets Open Lower; Hasbro Beats Q2 Estimates

The New NAACP Fund Shows ESG ETFs Are Evolving