Private equity firm Apollo Global Management LLC is in advanced talks to acquire LifePoint Health Inc, in its latest bid to consolidate the rural U.S. hospital sector, two people familiar with the matter said on Friday.
LifePoint stock jumped more than 30 percent in after-hours trading.
The deal could value LifePoint at close to $6 billion, including debt. It would come as weak admission trends, pressures on Medicaid funding and increased efforts by private U.S. insurers to reduce healthcare costs are driving hospital operators to seek merger partners that will give them more scale to tackle these issues.
Apollo plans to merge LifePoint with another regional hospital operator that it owns, RegionalCare Hospital Partners. It would be by far the biggest acquisition for Apollo this year. LifePoint currently has a market capitalization of $1.9 billion and long-term net debt of $2.9 billion.
If the negotiations are completed successfully, a deal could be announced as early as next week, the sources said, cautioning that it was possible talks could fail at the last minute. The sources asked not to be identified because the matter is confidential.
Apollo declined to comment, while LifePoint did not immediately respond to a request for comment.
Based in Brentwood, Tennessee, LifePoint operates hospitals in around 70 communities across 22 states, focusing largely on small towns and rural areas.
Rural healthcare providers such as LifePoint have been challenged in recent years because their reliance on federal insurers such as Medicare and Medicaid has made them particularly vulnerable to changing reimbursement programs. Moreover, hospital operating costs have been rising faster than reimbursement rate increases.
Nevertheless, LifePoint has been a relatively strong performer in the rural healthcare space, buying up underperforming facilities and streamlining operations through targeted investments, according to Morningstar Inc analysts.
LifePoint shares, however, have remained under pressure, losing around a quarter of their value in the past 12 months.
“LifePoint has a high level of committed capital expenditures, which will weaken free cash flow and interest coverage metrics over the next 12-18 months,” Moody’s Investors Service Inc analysts wrote in a research note in March.
Many healthcare providers have been bulking up through mergers and acquisitions in recent years in an effort to better weather the challenges facing the sector.
Recent deals have included a sale of Davita Medical Group to insurer UnitedHealth Group Inc in 2017 and the sale of Envision Healthcare to private equity firm KKR & Co Inc earlier this year.
Apollo, which raised a $24.6 billion private equity fund last year, acquired RegionalCare in 2015, and merged it with another hospital operator, Capella Healthcare, in 2016.
