GTCR makes first buy in hospital rollup

This past summer Chicago’s GTCR Golder Rauner committed $200 million (€170 million) of equity to launch Tennessee-based hospital acquisition platform Capella Healthcare. Yesterday, the firm completed its first acquisition for the rollup, buying four hospitals from the publicly held HCA Inc.

When GTCR launched Capella, which focuses on the acute-care hospital space, the firm tapped Province Healthcare vets Daniel Slipkovich, Tom Anderson Andrew Slusser and Sam Moody to head the company.

Province Healthcare was another hospital platform GTCR had started in 1996 with industry veteran Martin Rash. Under GTCR’s stewardship, the company went on to acquire eight hospitals before it went public two years later. Last year, the company was sold to LifePoint in a $1.7 billion deal.

No terms of GTCR’s most recent hospital acquisition were announced. Through the transaction, Capella will acquire hospitals in Tennessee, Oklahoma and Washington.

The hospital play has been one of the more popular bets made by private equity groups in recent years. Goldman Sachs, in October, put $150 million toward a similar platform, Signature Healthcare, while JLL Partners, put together its own hospital rollup last year, Attentus Healthcare. The same play is also being pursued in Europe, where Legal & General Ventures recently paid €123 million to buy a bundle of nine hospitals and Electra Partners Europe acquired Phoenix Equity Partners’ Covenant Healthcare.

Amid the increased competition in the space, GTCR associate Joshua Earl told PEO that because of his firm’s experience in the Province investment, GTCR could have a leg up on the competition. Earl also notes that the industry is probably large enough that all of the groups won’t necessarily be stepping on each others’ toes.

Like most targeting the space, GTCR is counting on the aging population to fuel the sector’s growth. According to Earl, going forward, the firm will primarily target not-for-profit hospitals, although the HCA purchase was made to provide a larger platform from which to build.

“We feel that the hospital market in this country is underserved,” Earl said. “The industry is dominated by underperforming, undercapitalised, non-profit assets. Because these hospitals are undercapitalised, that generally leads to underperformance, which creates a downward spiral.”

GTCR has not yet identified how many hospitals Capella plans to accumulate. Earl would only say that the company still has well more than half of GTCR’s initial $200 million commitment to put toward future purchases.

To finance the deal, GTCR called on Citigroup and Bank of America to supply debt for the transaction. King & Spalding and Kirkland & Ellis both provided legal counsel to the sellers on the deal.