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HCA Pays a $2 Billion Dividend to PE Owners

We can now decisively say that two of the mega LBOs (leveraged buyouts) that took place from 2005-2007 were a success.

Hospital Corporation of America headquarters in Nashville, Tenn., Monday, July 24, 2006. HCA board members have approved a deal to be purchased by a group of investors for about $21.3 billion and is recommending it to its shareholders. (AP Photo/John Russell)
John Russell
Hospital Corporation of America headquarters in Nashville, Tenn., Monday, July 24, 2006. HCA board members have approved a deal to be purchased by a group of investors for about $21.3 billion and is recommending it to its shareholders. (AP Photo/John Russell)


With its plan to pay a dividend of $2 billion to its private equity owners, it is clear that the $33 billion leveraged buyout of Hospital Corporation of America (HCA), having already paid its backers 85 percent of their equity investment in dividends ($4.25 billion this year) without having sold a sliver of new equity, will generate the kind of returns often promised when these deals are announced, but rarely delivered once they are completed.

HCA joins Kinder Morgan as a rare win from the bubble period that produced a slew of the biggest go-private transactions in financial history, many of which will generate slim returns for their private equity backers once they can create an exit.

Of course, the backers of HCA—Kohlberg Kravis Roberts and Bain Capital—have yet to create an exit, though they have used the generous high-yield market to finance a return of capital without the use of an IPO (initial public offering).

Next year may well bring that IPO and the next few years will likely see the sale of billions more in stock as the total return on this deal climbs the charts.

You can bet with the copious amounts of money available in a generous high-yield market that private equity firms are looking at HCA’s returns and imagining what they could do with the return of some big deals.

These days, most PE deals are staying under $5 billion, a far cry from the size of HCA. And while we may never see deals the size of HCA, Kinder Morgan and TXU again, don’t be surprised to see the numbers soon head northward. Nothing helps confidence like a deal gone good.


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