Private capital opportunities: 'A first in several decades'

The pending $830 million dollar purchase of the nonprofit Caritas Christi Health Care system in Massachusetts by New York private equity firm Cerberus Capital Management may be just the forward tip of private equity's move into the hospital sector under health reform, according to Marc Cabrera, managing director and head of the Healthcare Investment Banking Group at Morgan Joseph & Co., a New York-based middle-market investment banking firm that recently expanded its Healthcare Group.

In a potential "first in several decades," hospital CFOs "have an ability to explore alternatives that they have probably never really thought about in the past," Cabrera tells me. "Given what has gone on in the capital markets over the last two years, there may be scenarios where the private capital markets are more attractive than the traditional municipal market financing options. Historically that is a relationship that has never really been inverted. The municipal capital markets were always more attractive from a cost-of-capital standpoint."

Hospital CFOs should be aware that private capital "is a completely different market," says Cabrera. "It's much more of a negotiated market where you are dealing with maybe one institutional partner."

That said, the core issues under review by either financial investors or strategic investors that already own a for-profit hospital system probably haven't altered significantly under health reform, he points out. "The return profiles may have changed in this environment, but I don't know if the high-level questions are that different because some of the big for-profit hospital consolidators have always looked at opportunities in the nonprofit world. Reform on the for-profit side creates some additional opportunities for those investors." - Caralyn