Manor Care, the largest U.S. owner of nursing homes, on Monday said it agreed to be acquired by Carlyle for $4.9 billion, the latest health-care provider taken off the public market by a private equity buyer.
Manor Care shareholders will receive $67 per share, a 20% premium to the stock's closing price on April 10, the day before the company said it was putting itself up for sale, and a 2.6% premium to Friday's close.
The total value of the deal, including assumed debt, is $6.3 billion, the company said.
Stable reimbursement from Medicare, the federal health insurance program for the elderly, and the value of underlying real estate made the company an attractive takeover target, analysts said.
"In addition to the basic fundamentals that are very good, (such) companies own their underlying real estate -- there is a lot of embedded value...," said Frank Morgan, an analyst at Jefferies.
The deal will be financed through a combination of commercial mortgage-backed securities, other debt financing and cash provided by Carlyle.
The remaining large players in the skilled nursing space include Kindred Healthcare, Sun Healthcare Group and Skilled Healthcare.
Private equity firms typically buy companies, cut costs, and sell them later, borrowing around two-thirds of the money needed to finance their deals.
Private equity activity in the health-care sector has accelerated since last year's leveraged buyout of hospital chain HCA. Nursing home chain Genesis HealthCare agreed to be purchased by private equity buyers in
January, and Beverly Enterprises went private in 2005.
"We believe (Manor Care) could not pass on the attractive valuations of the private equity markets," said Michael Wiederhorn, an analyst at CIBC Markets.
"The deal price is roughly a 20 percent premium to (Genesis Healthcare's) take-out valuation of 10 times our 2007 (earnings) numbers," he added. "This is in line with the 20 percent premium that Manor Care has traditionally traded at relative to (Genesis.)"
The steady cash flow nursing home operators produce is a big attraction for private equity firms that need the cash to pay down borrowed debt.
Manor Care shares were down $1.11, or 1.7%, to $64.18 near midday on the New York Stock Exchange.