Private equity powerhouse books $1.6 billion profit selling hospital chain

Apollo Global Management Inc. booked a $1.6 billion gain for its 2013 buyout fund by selling its majority stake in rural hospital chain LifePoint Health to another Apollo fund.

The firm’s eighth flagship fund completed the sale to its ninth last month for $2.6 billion, after investing a total of $975 million in Brentwood, Tennessee-based LifePoint, according to a quarterly report obtained by Bloomberg. Other investors put up some of the money.

LifePoint was among several private equity-backed health-care firms that received government relief last year amid mounting costs from the pandemic, drawing criticism from lawmakers who said the cash should have come from investors, not taxpayers. The hospital chain was one of the biggest beneficiaries, with a $1.64 billion lifeline that included almost $650 million in grants and $991 million in loans.

“Private equity’s growing reach into our health-care system is concerning precisely because private equity’s mission to reap enormous profits often stands in direct conflict with the Hippocratic Oath,” U.S. Representative Bill Pascrell, a New Jersey Democrat, said in an emailed statement. “We need greater transparency and more cutting oversight of these private-equity firms.”

LifePoint needed taxpayer support to stay open and protect jobs, said spokeswoman Michelle Augusty, noting that it repaid the government loans ahead of schedule.

“All grant aid we received has been applied to LifePoint’s communities and only partially offset the $1.1 billion in extraordinary expenses and lost revenue that we incurred” because of the pandemic, she said.

Apollo wasn’t the only private-equity firm to orchestrate an uncommon exit from a for-profit hospital chain this year. Cerberus Capital Management and Leonard Green & Partners sold their remaining interests to insiders at the health-care companies they had backed, rather than selling to an industry competitor or pursuing an initial public offering.

Cerberus made roughly $800 million on its investment in Boston-based Steward Health Care, after paying $246 million in 2010 for what started as a chain of struggling Catholic hospitals.

As for Apollo, the buyer came from within.

The firm turned to its $24.7 billion flagship buyout fund that finished raising money in 2017. In April, the fund agreed to put up $2 billion alongside $600 million from other investors to buy LifePoint from the 2013 pool.

Such deals are often frowned upon by private-equity investors. The worry is that one fund might overpay or underpay, which could put one group of investors at a disadvantage. In this case, the advisory boards of the two funds approved the move.

“We worked with fund investors, independent advisers and multiple new co-investors to reach a fair and attractive transaction for both funds,” said Apollo spokeswoman Joanna Rose. “This was a unique transaction for Apollo and we are proud to continue supporting the company and its mission.”

Cash Stockpile
The firm built LifePoint through the acquisition of three regional hospital chains in 2015, 2016 and 2018, and the company now operates 87 hospitals in small towns across the U.S. Apollo has said it can operate hospitals more efficiently by merging them. Technology and infrastructure upgrades are among a number of improvements LifePoint has made on Apollo’s watch, according to the private-equity giant, which is marketing the health-care firm as a socially responsible investment in its pitch to raise an inaugural impact fund.

LifePoint has emerged from the pandemic in a position of strength even as many rural hospitals have struggled to survive. Its cash stockpile grew significantly during the crisis as the company tapped debt markets.

Apollo told Fund IX investors that they stood to gain from their investment in LifePoint, as the hospital chain was sitting on more than $2 billion of cash that could be used to expand the business through acquisitions.

In June, LifePoint took a step toward executing on that strategy by striking a deal to buy hospital chain Kindred Healthcare.

“This is a great outcome for both funds,” Apollo wrote in its report that month, “with a successful realization for Fund VIII and an opportunity for Fund IX to back a proven management team in continuing to invest in local health care, build the platform and generate attractive returns.” Bloomberg