Dec 16, 2021 - Health

Scoop: Prospect Medical seeks multiple buyers

Illustration of a saline bag solution with money as the liquid in the bag.

Illustration: Aïda Amer/Axios

Prospect Medical Holdings, after buying back Leonard Green & Partners' stake this summer, is seeking suitors for its West and East Coast assets, sources familiar with the matter told Axios.

Why it matters: These assets come to market when buyers are eager to invest behind the health-care industry's transition to value- or risk-based care and some of these assets could provide an opportunity to do just that.

What’s happening: Guggenheim Partners is selling Prospect’s West Coast assets, while Morgan Stanley’s tax-exempt finance group is selling its East Coast assets, sources said.

  • Concentrated in Southern California, the West Coast encompasses two businesses generating combined EBITDA of around $150 million, sources said.
  • Roughly two-thirds of that stems from its hospital group, which includes five acute care and two behavioral health facilities.
  • The rest comes from its risk-taking physician group that owns and manages IPAs. Sources likened the latter to names like Agilon, Cano Health, CareMax, or Privia.
  • The East Coast assets in market include for-profit hospitals across Pennsylvania, Connecticut and New Jersey.

Between the lines: The East Coast process will be relatively straightforward, but the West Coast presents a variety of potential outcomes.

  • Non-profit hospitals are looking at Prospect's East Coast hospitals in their respective states as feeders, or density plays, sources said.
  • On the West Coast, Prospect is entertaining bids for its two arms both individually and as one. Sources said each will attract different sets of suitors, spanning PE groups, SPACs, health systems and academic medical center.

What we're watching: Can hospitals, as potential buyers on the West Coast, effectively compete today against PE and SPACs?

Flashback: After more than a decade, LGP exited its position in Prospect several months ago, a source confirmed.

  • According to The Wall Street Journal, after Rhode Island regulators this summer approved the sale of two state hospitals with certain stipulations, it ended “an impasse between the regulators and hospitals’ owners that threatened to close them.”
  • The deal paved the way for the PE firm to sell back its stake to Prospect management, the report said.

Prospect Medical did not return requests for comment.

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