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Soothing relief

22 February 2011 By Lisa Lee

Private equity has found a salve for its mega-deal pain. HCA, an operator of healthcare facilities and systems that could be worth some $43 billion, pared the size of its upcoming IPO by a fifth. But by virtue of the company’s valuation and dividends, its backers should still more than triple their 2006 investment. Many other gargantuan leveraged buyouts from the era, however, still need some long-term care.
The company originally revealed plans to go public in May 2010. But equity markets wobbled and new shares were tough to get away. With the renewed fervor from investors, HCA is now pressing ahead with the listing. It expects to raise about $3.5 billion, using the midpoint of its $27 to $30 per share price range. That’s $1 billion less than originally intended.
Yet HCA already has provided a healthy dose of funds for KKR, Bain Capital, Bank of America Merrill Lynch’s private equity arm and company founder Thomas Frist. Following the $33 billion acquisition, the owners squeezed out $2.25 billion of dividends. Then, at the end of last year, they persuaded hungry bond investors to buy new high-yield debt, which funded another $2 billion payout.
The delay also hasn’t much hurt HCA’s valuation. If the shares were to sell at $28.50 apiece, the equity would be valued at about $14.7 billion. Add that to the dividends and the owners will have gotten back $19 billion in exchange for their initial investment of $5.8 billion.
For one of the biggest leveraged buyouts in history, it looks like capital well spent. HCA has put up respectable profit growth and even cut its leverage. And assuming healthcare reform survives legal challenges, there’s still more promise for the hospital industry.
HCA’s IPO may prove one strong vital sign for the concept of giant buyouts. But others are still nursing their wounds. Harrah’s, the casino operator, was forced to yank its IPO last year and chipmaker Freescale’s looks as though it could be a painful sale for its owners. TXU has been ravaged by natural gas prices, Univision is still recovering from its eye-watering debt and Realogy remains a victim of the real estate market. For them, there is still much financial healing to be done.


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