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Tenet Healthcare (THC) and USPI Strike SurgeryCenter Deal

Tenet Healthcare Corporation THC along with its unit United Surgical Partners International (USPI) has entered into a definitive agreement to acquire SurgCenter Development (SCD) for $1.2 billion. The leading hospital company took this initiative to boost its portfolio of ambulatory surgery centers. Subject to certain closing conditions, the deal is expected to close in the fourth quarter of the current year.

Per the terms of the agreement, Tenet Healthcare and its subsidiary will purchase interests in 92 ambulatory surgery centers and other related support services. The hospital company plans to finance the buyout by issuing first-lien secured notes.

The deal will not only boost USPI's footprint in the existing markets, such as Florida but also enter new markets like Michigan. The centers are located in 21 states, such as Florida, Arizona, Texas, Oho, Indiana among others.

Moreover, USPI and SCD’s principals also tied up to offer support to SCD’s facilities and physician partners in the coming years.

With the closure of the deal, USPI will operate 440 surgery centers in 35 states. The transaction follows USPI’s buyouts of 67 SCD centers since 2009 and this deal further solidifies their relationship.

SCD anticipates strengthening its growth trajectory with de novo ASCs and through this new deal with USPI . It has developed more than 200 centers since its inception in 1993.

Financial Impact of the Deal

Tenet Healthcare expects the buyout to contribute to the growing segment of its adjusted EBITDA that is being produced by its higher-margin ambulatory centers. The company expects the deal to generate solid financial returns, such as enhanced adjusted EBITDA and free cash flow.

Tenet Healthcare expects to realize at least $45 million of annual run-rate synergies over the span of three to four years from the deal.

Other Initiatives

This latest announcement follows the company’s deal struck in October with Compass Surgical Partners to acquire its ownership and management interests in nine ambulatory surgery centers in Florida, North Carolina and Texas.

The company’s revenues are steadily gaining from USPI’s performance and also its 2020 buyout of the SCD Centers. USPI had interests in 318 ambulatory surgery centers and 24 surgical hospitals in 31 states as of Sep 30, 2021.

Tenet Healthcare boasts a strong inorganic growth story. It made numerous acquisitions and forged partnerships and strategic alliances, aimed primarily at boosting its scale of business, operating capacity and an expanding geographical presence. It closed the buyout of an ASC in Washington and a new surgical hospital in ASC in the Central Valley of California. The company completed its acquisition of a portfolio of 45 ambulatory surgical centers from SurgCenter Development for $1.1 billion in December 2020.

Zacks Rank and Price Performance

Shares of this currently Zacks Rank #3 (Hold) company have gained 151.5% in the past year, outperforming its industry’s growth of 54.2%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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Other companies in the same space, such as UnitedHealth Group Inc. UNH, HCA Healthcare, Inc. HCA and Community Health Systems CYH have gained 32%, 69.2% and 70.9%, respectively, in the same time frame.

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