JLL Partners is planning its return to the hospital space, this time targeting rural hospitals throughout the U.S. The New York-based firm has teamed up with industry veterans Richard Gore and Robert Yeager to create Attentus Healthcare.
Attentus has been set up to acquire rural acute-care hospitals, and will be backed by a $75 million commitment from JLL through its $750 million Fund IV. Venture firm Clayton Associates will also contribute with a $2 million investment. For JLL, the acquisition vehicle represents its third trek into the healthcare arena, following investments in OrNda Healthcorp. (sold to Tenet Healthcare in 1997) and current portfolio company IASIS Healthcare.
While JLL has yet to make any purchases through Attentus, the firm will use the vehicle to acquire as many as 20 to 30 small hospitals over a roughly three-year span. “It’ll depend on how quickly we can add them, but we envision this to be a $250 million to $300 million company,” JLL Senior Managing Director Jeffrey Lightcap said, adding that Attentus would be targeting hospitals with revenue ranging from $15 million to $25 million.
“The rural hospital sector tends to have less competition, and the providers can have very high operating margins,” Lightcap said. “Many times these hospitals don’t have access to capital, and we will be able to address those needs. And the smaller segment of the market that we’re targeting typically has less suitors, so we think we will be able to buy the smaller rural operators at favorable prices.”
Robert Yeager, who will sit beside Richard Gore as co-CEO of Attentus, further added that the demographics of the rural hospital space are attractive. “Currently hospital services are the largest single category of healthcare at 30% of total healthcare spending, and within that sector non-urban or rural hospitals serve approximately 25% of the U.S. population,” he said.
While Attentus will be scanning the entire U.S. for deals, Lightcap expects a “majority of the acquisitions to take place in the Southeast, through the Sunbelt, and on to the Southwest.” In fact, the firm has already identified more than 450 hospitals that fit the archetype JLL is pursuing, and a good portion of those are located in the regions he mentioned.
The business model behind Attentus doesn’t stray far from JLL’s IASIS platform, which is an urban-focused hospital company. “When we started IASIS in 1999, we followed a similar strategy and backed a management team as we have done in this case,” Lightcap said. However, he clarified there are some small differences in running a rural hospital company as opposed to an urban operation. “In large measure, it’s pretty much the same, although rural hospitals tend to be less complicated as they don’t traditionally have as many offerings and don’t typically deal with the managed- care payers as much,” Lightcap said, noting that the managed-care payers can be “difficult to collect from and usually negotiate hard on prices.”
Both Yeager and Gore have spent the bulk of their careers in the healthcare sector. Yeager co-founded OrthoLink Physicians Corp., where he also served as CEO, and before that was the chief financial officer at Quorum Health Group. Gore, meanwhile, was a co-founder of Province Healthcare, which is a non-urban hospital company listed on the NYSE, and previously was employed at Quorum Health Group as a vice president and controller.
While Attentus has yet to close any deals so far, Lightcap said the company is currently working on a couple transactions and hopes to see some close by the coming spring. “If we build the company up over the next few years to the right size, and if we improve the operations of the hospitals we buy and get the infrastructure in place, there could be the potential for an IPO,” Lightcap said.