Private equity firms look to invest in hospital leadership

A new player has broken onto the mergers and acquisitions deal-making scene: private equity firms. Although they have long powered deals in other sectors, they traditionally remained on the sidelines when it came to the regulation-heavy, margin-thin hospital market--until now.

The spark of this activity is simple: The healthcare industry is exiting a period of business decline, rapidly growing and enjoying new value.

"Hospital valuations are trading at pretty close to a trough in the industry on a public basis," said Trey Crabb, a managing director with Chicago-based Ziegler Investment Banking, which has brokered deals between healthcare entities and private equity firms.

Many PE firms with big hospital portfolios are wary of speaking on the record. But observers with close ties to those firms told FierceHealthFinance that few of them micromanage their assets, or are even particularly hands-on. They typically delegate day-to-day responsibilities to hospital management.

Still, PE firms want the right management. Who occupies the C-suite can be as big a driver of a deal as the patient mix.

"When the Blackstone Group invested in Vanguard, they were investing just as much in Keith Pitts," said the hospital system's longtime vice chairman, Shane Passarelli, a senior vice president with Capital One's healthcare finance division.

Private equity firms look for hospital partners in much the same way advance scouts recruit in baseball. They're scoping out talent in the majors only; minor leaguers need not apply.

For a further discussion of private equity's role in healthcare and payer-provider partnerships check out FierceHealthFinance's free eBook, Momentum Building: The Current Healthcare Mergers & Acquisitions Market.

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