On paper, it looks like a board turning down free money. On Monday, Nov. 9, Surgery Partners, the Nashville-area operator of more than 200 surgical facilities in which Bain Capital owns about 39 percent, said it had rejected an unsolicited offer of $28 a share in cash. Instead it accepted a raised bid of $25 a share from HealthSpan Partners, an affiliate of the Cincinnati-based Catholic hospital system Bon Secours Mercy Health.
The Wall Street arithmetic is not as strange as it looks, and the way the special committee got there is worth a close reading.
The new terms
HealthSpan’s original agreement, which we covered when it was announced, priced the company at $23.50 a share. The amended agreement lifts that to $25 in cash and adds what lawyers call a ticking fee. If shareholders approve the deal but it has not closed by March 1, 2027, public holders get monthly cash payments at a rate of 10 percent a year on the $25 price, up to $1.61 a share if the deal drags all the way to its outside date of Oct. 23, 2027. That makes the maximum $26.61, and it puts an enterprise value on the company of up to about $6 billion, according to the release. Shares rose 12 percent in morning trading, Reuters reported.
Bain gets none of it. Its affiliates will not receive cash or ticking fees. They will roll their shares into the acquiring entity and remain, in the release’s words, “a significant partner” in the business after closing. Bain’s voting agreement to support the HealthSpan deal remains in place, which, with 39 percent of the vote already locked up, makes the shareholder meeting less suspenseful than it might be.
The rival
The company did not name the other bidder. Bloomberg News reported, citing a person familiar with the matter, that it was UnitedHealth Group, Becker’s Hospital Review noted; UnitedHealth’s Optum unit already owns a large network of surgery centers, a footprint that would draw antitrust attention. The company says it received an unsolicited, non-binding proposal on Nov. 3, which was updated on Nov. 8 to $28 a share in cash. The special committee, made up entirely of independent directors, concluded that the higher offer was not a “Superior Proposal” under the merger agreement for three reasons: it would take “materially longer to close” or “may not close,” it carried more regulatory risk and complexity, and it “did not provide contractual and other protections sought by the Special Committee to mitigate those risks.”
Read that last clause carefully. Boards do not usually say a bidder refused to provide protections unless the committee asked for something specific, such as a large reverse termination fee or a commitment to accept whatever divestitures regulators demand, and did not get it. A $3 premium that can disappear in an antitrust review is worth less than $25 that arrives in the first quarter. The ticking fee is HealthSpan’s answer to the same question from the other side: if the closing is slow, HealthSpan pays for the delay.
The Bain angle
For Bain, which first invested in Surgery Partners in 2017, the structure is its own kind of message. A private equity owner that rolls its entire stake rather than cashing out is telling the market it thinks the business is worth more than the price everyone else is getting. The roll also keeps Bain in a sector, outpatient surgery, that has been one of the most reliable growth stories in American health care, as insurers and hospital systems push procedures out of expensive hospital wards and into cheaper centers.
It also keeps a nonprofit health system and a buyout firm in business together, which is an arrangement New York’s own hospital executives will watch with interest. Hospital systems have long partnered with physician groups on surgery centers. A Catholic system buying a public operator with a private equity firm along for the ride is a more ambitious version of the same idea.
The New York advisers
The deal is a showcase for the Manhattan advice business. Centerview Partners is lead financial adviser to Surgery Partners, with Leerink Partners also advising. Moelis & Company advises the special committee, with Goodwin Procter as its counsel. Jefferies is HealthSpan’s exclusive financial adviser and has committed the financing as sole initial underwriter. Paul, Weiss is HealthSpan’s counsel. Kirkland & Ellis represents Bain, with Barclays and J.P. Morgan as Bain’s financial advisers. HealthSpan says it will pay for the deal with cash on hand and new debt.
The deal still needs a shareholder vote and regulatory approvals and is expected to close in the first quarter of 2027. The rival bidder could come back. But the committee has now said in public, and in writing, what it values: the deal most likely to close. In a year of stalled exits and long antitrust reviews, that is a price signal in itself.
Featured image: 520 Madison Avenue, the Manhattan headquarters of Jefferies, HealthSpan Partners’ financial adviser and lender in the Surgery Partners deal (cropped). Photo by Jonathan Schilling via Wikimedia Commons, CC BY-SA 4.0.
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