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Carlyle moves on Heritage Provider Network

Nov 16, 2022
Illustration collage of a hand hovering over three identical medical crosses and numerous geometric shapes

Illustration: Annelise Capossela/Axios

Carlyle Group is vying to acquire Heritage Provider Network (HPN), as reported by Reuters on Tuesday and confirmed by Axios.

Why it matters: The deal for the risk-taking physician organization, which Reuters says could be worth from $8 billion to $10 billion, would be among the largest leveraged buyouts announced this year.

Be smart: Sources say pricing talks are more in the $7 billion to $8 billion range for HPN, which is solely owned by CEO Richard Merkin.

  • Whether the deal gets done depends on whether Carlyle — which Reuters reports is assembling a consortium to pursue the deal — can secure financing in a very tight debt market. A big if.

Between the lines: Debt may be available to lever the potential deal, but the leverage multiple will be much lower than 12 months ago, one direct lender in healthcare says.

  • "Lenders are focused on interest coverage at 2x in a rising rate environment," he says.
  • "Debt will be available, but lower amounts and higher cost, plus prepayment premiums," he adds.

Yes, but: Merkin could roll up to a third of his equity in the deal, lightening the load for debt providers and sponsors, one source said.

Catch up fast: HPN kicked off an auction via JPMorgan in May.

  • HPN produced $633 million of 2021 pro forma adjusted EBITDA but non-adjusted 2021 EBITDA was $490 million; estimated pro forma 2022 EBITDA is $765 million, Axios reported then.
  • 2022 estimated revenue is about $4.4 billion, about 86% of which stems from California, followed by smaller footprints in New York and Arizona.

💭 Our thought bubble: A company owned by one individual isn't quite as susceptible to market pressures as one backed by institutional investors. If the terms don't suit Merkin, he's free to walk from the deal table.

Carlyle and JPMorgan declined to comment. HPN did not return a request for comment.

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