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UPDATE: KKR to acquire Envision for $9.9B, boosting deals in medical services

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UPDATE: KKR to acquire Envision for $9.9B, boosting deals in medical services

KKR & Co. LP will acquire Envision Healthcare Corp. in a $9.9 billion deal, including debt, adding more fuel to an active year for deals in the healthcare industry.

The investment firm will acquire all outstanding shares of the U.S. medical services provider for $46 per share in cash. The per-share price represents a 32% premium to Envision's volume-weighted average share price from Nov. 1, 2017, one day after the company said it was reviewing strategic alternatives for the business.

The Nashville, Tenn.-based company's board reviewed multiple options and concluded that KKR's offer "presented the best opportunity to maximize value for shareholders."

Envision provides services at approximately 1,800 clinical departments at healthcare facilities in 45 states and the District of Columbia. The company also operates 264 ambulatory surgical centers services, or ASCs, that offer surgical procedures in specialties including orthopedics and ophthalmology. In addition, Envision runs physicians' offices and provides management, oversight and surgeon staffing among other services.

The company had net revenue of $7.82 billion in 2017, more than double the $3.5 billion it brought in the previous year. Envision's 2017 results got a boost from the merger with AmSurg Corp.

The deal is the latest in a year that has seen a lot of activity already with 19 deals in healthcare during the first quarter totaling approximately $62 billion. According to a report from consultancy group Bain & Co., healthcare private equity investors drove growth in acquisitions despite rising competition from more generalist, institutional or tech-focused funds.

Healthcare-related mergers and acquisitions may exceed $200 billion this year, according to a report from consulting firm EY. In 2017, private equity and venture capital investment in the healthcare sector reached an all-time high of 128 deals valued at $14.2 billion, according to an S&P Global Market Intelligence analysis.

Healthcare is subject to a lot of uncertainty but has one of the biggest opportunities to improve inefficiencies, making it an attractive area for deals, David Piasecki, chief investment officer of private equity firm ElmTree Funds LLC, told S&P Global Market Intelligence in an interview in March. Piasecki expects private equity healthcare deal activity to continue to grow unabated.

Ambulatory care 'arms race'

"We see the arms race for ambulatory care delivery continuing and likely to remain a strategic focus for OptumCare, HCA Healthcare and Tenet Healthcare, as well as not-for-profit hospital and health systems, and Private Equity," Leerink Partners analyst Ana Gupte wrote in a June 11 research note.

Gupte said Brentwood, Tenn.-based Surgery Partners Inc. is a possible potential future target for UnitedHealth Group Inc., HCA Healthcare Inc. or Tenet Healthcare Corp.

Surgery Partners operates 124 surgical facilities across 32 states in the U.S. and has a market capitalization of about $740 million, according to S&P Global Market Intelligence data.

Envision will become a private company and its stock will cease to trade on the New York Stock Exchange upon completion of the acquisition by KKR.

KKR will be making the investment primarily from its KKR Americas Fund XII.

The transaction is expected to close in fourth quarter 2018, subject to customary closing conditions.

J.P. Morgan Securities LLC, Evercore and Guggenheim Securities LLC are serving as financial advisers, and Wachtell Lipton Rosen & Katz and Bass Berry & Sims are serving as legal counsel to Envision.

Simpson Thacher & Bartlett LLP is acting as legal counsel to KKR.

Citigroup Global Markets, Credit Suisse, Morgan Stanley, Barclays, Goldman Sachs, Jefferies, UBS Investment Bank, RBC Capital Markets, HSBC, Mizuho and KKR Capital Markets will provide debt to finance the deal.