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Blackstone bid For TeamHealth could reach $4 billion

Blackstone Group is said to be in the lead to buy US hospital staffing company TeamHealth (TMH) , which The Deal reported earlier this month was a distinct possibility. According to Reuters, the PE firm that once owned TeamHealth outbid competitors, though the value of its offer could not be established. According to The Deal's analysis, the bid is likely to have been in the vicinity of $4 billion.


TeamHealth has been the subject of activism, as the sector faces pricing pressure and a need for consolidation. Jana Partners joined TeamHealth’s board earlier in the year.


Two of TeamHealth's rivals-AmSurg and Envision Healthcare, announced a merger-of-equals transaction that will create a physician services behemoth with an enterprise value of approximately $15 billion.


That deal came only months after AmSurg in November abandoned its brief pursuit for TeamHealth after hiking the cash component of its $7.8 billion offer.


TeamHealth's shares were up 1.49% in early Wednesday trading, to $40.85.


Management of TeamHealth succumbed to pressure from Jana in March, agreeing to appoint the activists' three-person slate of dissident director nominees to its board. The Deal reported at the time that the moves suggested TeamHealth was one step closer to a transformative deal, as Barry Rosenstein's hedge fund had already publicly launched a campaign to push the company to explore an "extraordinary transaction".


Rosenstein's activist firm currently holds a 7.9% stake in the company, alongside fellow hedge funds Sachem Head Capital Management and Corvex Management LP, with 3.8% and 3.7% interests, respectively.


The newly appointed directors at TeamHealth are Scott Ostfeld, a partner at Jana, Edwin (Mac) Crawford, the former chairman of CVS Caremark (CVS), and Henry Ford Health System CEO Nancy M. Schlichting.


From a timing standpoint, private equity may also be more plausible than a strategic suitor given that AmSurg and Envision still have several months ahead to work through integration.


"While AMSG/EVHC are likely interested in TMH, their pending merger makes it unlikely for them to make an offer in the next 12-18 mos," analyst Brian Tanquilut of Jefferies noted in a report earlier this month.


The other big physician staffing player is Mednax (MD), but Tanquilut wrote that it remains on the sidelines for now. Mednax is likely waiting to make any strategic moves until it sees how the combined AmSurg-Envision affects the anesthesiology sector, he wrote.


Also supporting a deal for TeamHealth is the tough time it is having integrating IPC Healthcare, Tanquilut added. TeamHealth in November completed its $1.6 billion deal for IPC, a North Hollywood, Calif.-based physician practice group focusing on hospital, acute and post-acute services.


With plenty of runway for consolidation in the physician services space, TeamHealth is likely viewed as a good platform opportunity for sponsors. As AmSurg and Envision work to integrate, one could make the argument that TeamHealth and Mednax, which are also known to be prolific acquirers, are in a better position to execute on any strategic initiatives or roll-up opportunities.


From price standpoint, Tanquilut predicted that TeamHealth could fetch a bid in the range of $45 to $58 a share, basing his analysis on recent physician deals, which suggests a deal valued at 10x to 12x Ebitda.


With about 75.2 million diluted shares outstanding estimated as of June 16, that would suggest a valuation of as high as about $4.36 billion.


Blackstone first bought Team Health from a consortium that included Madison Dearborn Partners in 2005. Its renewed interest in TeamHealth would follow its exit from its earlier position after TeamHealth's 2009 initial public offering.

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