HCA set to break longstanding LBO record

The US$33bn HCA buyout, announced on 24 July 2006, officially becomes the world’s largest ever ‘announced’ leveraged buyout deal, according to Thomson data.

HCA, founded in 1968 and headquartered in Nashville, Tennessee, claims to be the United States’ leading provider of healthcare services, composed of locally managed facilities that include approximately 176 hospitals and 92 outpatient surgery centers in 21 states, England and Switzerland, employing 190,000 people “committed to the care and improvement of human life.”

Under the terms of the buyout, a private equity consortium comprising Bain Capital, Kohlberg Kravis Roberts (KKR) and Merrill Lynch Global Private Equity, together with HCA founder Dr Thomas Frist Jr, will pay HCA stockholders US$51 in cash for each HCA common stock, representing a premium of 18% to HCA’s closing price on 18 July 2006. The US$33bn transaction includes the assumption of US$11.7bn of debt.

In the table of largest ever announced leveraged buyouts, the HCA deal overtakes the US$30.2bn acquisition of cookie, cracker and tobacco company RJR Nabisco by the very same private equity firm KKR, announced back in 1988. Pushed into third place, is the US$30.19bn acquisition of UK airports operator BAA, by a consortium of investors led by Spanish infrastructure company Grupo Ferrovial, a deal announced in March 2006.

That RJR Nabisco deal made history, written up into a bestselling paperback thriller Barbarians at the Gate: The fall of RJR Nabisco, which according to the blurb gives readers “one of the finest, most compelling accounts of what happened to corporate America and Wall Street in the 1980’s.”

Unlike the RJR Nabisco deal, the HCA transaction is not predicted to be turned into a paperback thriller, not least because it does not stand out from the data. In 1988, when the RJR Nabisco deal was announced, there were just 147 leveraged buyout deals involving financial sponsors, valued at a total US$52.8bn. The RJR Nabisco deal accounted for well over half of that total.

It took ten years for LBO market levels to overtake the 1988 value, following a regular curve. So far in 2006, there have been 1,499 buyout deals announced globally, at a value of US$350bn: the HCA deal accounts for 9.4% of that total.

Under the merger agreement, HCA may solicit superior proposals during the ensuing 50 days: the HCA board has stated that it intends to “actively solicit superior proposals during this period.” There has already been speculation of a rival, record-breaking bid led by Blackstone Group, as well as expectation that there may be more, just as large LBOs to come.