Tenet Healthcare acquires SurgCenter’s ambulatory service centers in a deal worth US$1.5B

USA – Tenet Healthcare and its ambulatory care subsidiary United Surgical Partners International (USPI) have announced the US$1.5 billion acquisition of SurgCenter Development’s (SCD) ambulatory surgical center business.

Tenet will acquire SCD’s ownership interests in 92 ambulatory surgery centers and other support services in 21 states under the new agreement.

The deal’s value could rise by US$250 million in the coming months as USPI offers to buy physicians’ equity in the company.

USPI operates the country’s largest network of ambulatory surgery centers and surgical hospitals.

As part of the agreement, USPI signed a five-year agreement with SCD that gives it first dibs on future development projects. During that five-year period, the companies plan to establish at least 50 more surgery centers.

The acquisition will expand USPI’s presence in existing markets, such as Florida, where it already has 47 centers and will gain 15 more. USPI will also enter new markets with a significant footprint, such as Michigan, at the outset.

Moreover, USPI will gain over 440 surgery centers in 35 states as a result of the acquisition. The transaction includes SCD’s majority ownership of six surgery centers and a minority stake in 86 others.

Approximately two dozen of the centers have either recently opened or will perform their first procedures in 2022.

Tenet executives praised SCD’s service line mix, pointing out that musculoskeletal care, which includes total joint and spine procedures, accounts for a significant portion of the cases performed by these centers.

SCD’s acquisition a tremendous accelerant for Tenet’s business

Investors should be on the lookout for Tenet’s accelerated expansion in the coming years as the company seeks to cement its position in the ambulatory care market to grow even more in the coming years, thanks to a concurrent development partnership with SurgCenter and other anticipated merger and acquisition plans.

According to executives, the deal will generate US$175 million in Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) n the first year.

Analysts at SVB Leerink characterized the transaction as astute, claiming that it will reshape the company’s earnings toward a “faster growing, higher margin, and improved capital return profile.”

Tenet anticipated that its outpatient surgery business would account for a larger portion of its earnings power in 2021. In the long-term, this transaction accelerates that goal.

Tenet’s ambulatory surgery business accounted for only 5 percent of the company’s total earnings in 2014. Tenet expected the unit to account for 42 percent of its overall earnings in 2021 prior to this latest transaction.

This announcement comes on the heels of Tenet’s October agreement with Compass Surgical Partners to acquire ownership and management interests in nine ambulatory surgery centers in Florida, North Carolina, and Texas for an undisclosed sum.

Since acquiring USPI in 2015, Tenet has steadily expanded its surgical center footprint. In December 2020, the company announced a “transformational” US$1.1 billion deal for a majority stake in 45 SCD surgery centers.

It acquired a minority stake in nine surgery centers from Raleigh, North Carolina-based Compass Surgical Partners in October.

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