Weigh­ing a sale

Psy­chi­atric So­lu­tions deal could set off more

Modern Healthcare - - The Week In Healthcare - Jes­sica Zig­mond

In­dus­try an­a­lysts last week eval­u­ated the po­ten­tial sale of pub­licly owned Psy­chi­atric So­lu­tions, call­ing the com­pany a strong buy­out can­di­date and say­ing a deal could trig­ger ad­di­tional ac­qui­si­tion ac­tiv­ity in the be­hav­ioral health seg­ment.

On March 10, Franklin, Tenn.-based Psy­chi­atric So­lu­tions said it had been ap­proached by third par­ties about a pos­si­ble ac­qui­si­tion and had formed a spe­cial com­mit­tee of the board of direc­tors to con­sider pos­si­ble re­sponses. Also, the com­pany said it re­tained Gold­man, Sachs & Co. and Shear­man & Ster­ling as its fi­nan­cial and le­gal ad­vis­ers, re­spec­tively.

“There can be no as­sur­ance that any trans­ac­tion for a pur­chase of PSI will take place,” Psy­chi­atric So­lu­tions said in a news release. “PSI does not ex­pect to make fur­ther pub­lic com­ments re­gard­ing th­ese mat­ters un­less and un­til it en­ters into a de­fin­i­tive agree­ment with re­spect to a trans­ac­tion or de­ter­mines that none will be pur­sued.”

One of the be­hav­ioral health seg­ment’s largest op­er­a­tors, Psy­chi­atric So­lu­tions re­ported to­tal rev­enue of $1.81 bil­lion and net in­come of $117.6 mil­lion for the year ended Dec. 31, 2009, com­pared with to­tal rev­enue of about $1.7 bil­lion and net in­come of $104.9 mil­lion for the same pe­riod in 2008. By com­par­i­son, Uni­ver­sal Health Ser­vices— which has its be­hav­ioral health seg­ment in Brent­wood, Tenn.—re­ported net rev­enue of about $1.32 bil­lion for its be­hav­ioral health seg­ment in 2009.

In a re­search note, Kemp Dol­liver, a manag­ing di­rec­tor in the Bos­ton of­fice of Nashville-based Avon­dale Part­ners, said the an­nounce­ment is “not en­tirely sur­pris­ing,” and that Psy­chi­atric So­lu­tions would be a log­i­cal fit in the port­fo­lio for pri­vate eq­uity firm Bain Cap­i­tal, which has been cited in news re­ports as a po­ten­tial suitor.

“Bain’s own­er­ship of for-profit hospi­tal com­pany HCA is well-known,” Dol­liver wrote. “Less widely re­ported is Bain’s own­er­ship of CRC Health Group, which op­er­ates res­i­den­tial treat­ment cen­ters and com­petes with” Psy­chi­atric So­lu­tions.

Dol­liver’s note also said it’s “en­tirely pos­si­ble that Bain sees po­ten­tial syn­er­gies” with CRC, HCA or Psy­chi­atric So­lu­tions.

While there could be an agree­ment with Bain, Psy­chi­atric So­lu­tions’ board mem­bers

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