HealthSouth on Monday struck a deal to sell its surgery division to Texas Pacific Group (TPG), the US private equity group, for $920m in cash in order to focus on its core hospital business.
The Alabama-based hospital group, which is recovering from a multi-billion dollar accounting scandal, said it would take a small stake in the unit as a way of benefiting from any future surge in its performance under the new owners.
The ravenous dealmaking appetite of private equity groups in recent years has given many large companies an easy way to restructure their operations and divest non-core businesses.
However, many companies have been criticised for selling units too cheaply to buy-out groups that would then proceed to post double-digit returns after running the businesses for a few years, sometimes loading them up with debt.
This has given rise to an increased number of deals structured like HealthSouth's sale to TPG, in which the seller is retaining a $25m to $30m equity interest in the business.
HealthSouth's surgery unit operates a network of surgical centres and hospitals mainly concentrated in California, Texas, Florida, North Carolina and Alabama. Advised by Goldman Sachs, HealthSouth began to look for buyers last year.
The sale to TPG comes amid a flurry of consolidation in the hospital industry, mostly driven by interest from private equity groups.
Last July, HCA, the largest company in the sector, agreed to be acquired by Bain Capital, Kohlberg Kravis Roberts and Merrill Lynch in a $33bn deal.
This year, another consortium of private equity buyers agreed to buy Triad Hospitals for about $5bn but that deal was broken up by a competing offer from Community Health, a rival.
TPG has already invested in the for-profit hospital sector. In 2004, it agreed to purchase Iasis Healthcare for $1.4bn.
Hospitals are attractive investments for private equity groups because their stable cash flows can be used to repay higher levels of debt.
But they also carry political risk because in many cases they depend on high levels of government contributions to healthcare costs.
HealthSouth shares rose 0.6 per cent to $23 in morning trading on Monday.
