FASCINOMA

Physicians have a grim bit of slang for any malignancy they find to be interesting or amusing – “fascinoma”.

HCA, the largest for-profit hospital in the US, is currently the object of fascinoma. And Bain Capital, Kohlberg Kravis Roberts, Merrill Lynch and HCA management are about to become the private doctors to this interestingly afflicted business.

In a crucial way, the $33 billion (€25.7 billion) proposed buyout of HCA is similar to the $31 billion buyout of RJR Nabisco, also led by KKR, in 1989. Both target companies provide something that the public must have, and must have locally – healthcare and food, respectively.

A key difference, of course, is that people pay up front for food and cigarettes, while in the US, payment for healthcare comes late or never.

The hospital business is in a “lacklustre state”, says Paul Kacik, a senior vice president at Los Angeles investment bank Barrington Associates, and head of the firm's healthcare group. The HCA deal “was done at a time when the hospital sector is not a hot sector to be in”. Kacik adds that what ails US hospitals has mostly to do with high staffing costs due to a nationwide nursing shortage, an uncertain reimbursement environment, and increasing uninsured patient populations.

Hospitals have often been described as medical hotels, but where the guests sometimes check out without paying. Thanks to the skyrocketing price of health insurance, many patients arrive uninsured. In many communities, hospital emergency rooms, which are required by law to accept all patients, have become de facto points of entry to healthcare, and as such, serious loss centres.

Prior to announcing its buyout, HCA was suffering from declining earnings amidst a surge of uninsured patients.

That said, savvy investors buy at a low. The aging demographics of the US will not reverse, nor will the increasing need of these baby boomers for healthcare from nearby providers. What may change is how HCA structures its array of services. According to a recent report from McKinsey: “Many hospitals will have to reorganise around a narrower range of clinical activity, differentiate themselves on quality and service, think more like retailers they are fast becoming, and overhaul their relationships with physicians.”

And if patients think they'll easily avoid paying the new private equity owners of HCA, they'd better get their heads examined.

BLACKSTONE SEES GOLD IN GOLD TOE
In a deal reportedly worth $400 million (€312 million) including debt, The Blackstone Group will acquire major sock manufacturer Gold Toe and merge the company with its portfolio company Moretz, which makes socks for stores such as The Gap, Old Navy and Wal-Mart. Blackstone will own 65 percent of the combined company. Vestar Capital will also be retaining a minority share. Gold Toe, whose name was changed from Great American Knitting Mills in 2002, is the second-largest branded sock company in the US.

FRANCISCO, VECTOR ACQUIRE WATCHGUARD FOR $151M
After an announcement in July by Francisco Partners saying the firm would acquire the publicly traded internet security software maker Watchguard Technologies for $151 million (€118 million), the bid has taken a surprising twist. The announcement had represented an apparent snub by Watchguard of its second-largest shareholder, Vector Capital, which held 9.4 percent of the company's outstanding shares and had placed a bid for the company in May. However, just a few weeks after the initial release, Francisco released another announcement saying it would co-invest equally in the company with Vector, with shareholders receiving $4.25 per share in cash.

CONSORTIUM BUYS CAFETERIA CHAIN FOR $8.3BN
A private equity group including GS Capital Partners, CCMP Capital Advisors, JPMorgan Partners, Thomas H. Lee Partners and Warburg Pincus have partnered with Aramark chairman Joseph Neubauer to take the Philadelphia-based cafeteria operator private for $8.3 billion (€6.5 billion). Aramark is listed on the New York Stock Exchange. Neubauer has taken the company private before. In 1984, a year after he was named CEO, Neubauer led a management group that bought Aramark, then known as ARA Services, for $889 million, in order to fend off a hostile takeover bid. The company later went public again in December 2001.

BAIN TO BUY INSURANCE SOFTWARE COMPANY
Boston-based Bain Capital will buy Applied Systems, a University Park, Illinois-based company that produces software for the insurance industry, from Vista Equity Partners for around $675 million (€527 million). Applied Systems is one of the leading software providers to the insurance agent and broker marketplace. The company's core products include The Agency Manager, The Agent Manager Vision Series and DORIS. The deal follows an auction process that lasted several months and attracted a number of private equity firms including Madison Dearborn Partners.

FORTRESS BUYS INTRAWEST FOR $2.8BN
Fortress Investment Group has agreed to buy Intrawest, a Canadian travel and resort company that owns prominent Vancouver ski venue Whistler Blackcomb, for $2.8 billion (€2.2 billion), including debt. Fortress will acquire the company for $35 a share, paying a 30 percent premium over the closing price prior to the announcement of the offer. Whistler Blackcomb is slated to be among the host venues for the 2010 Winter Olympics. Intrawest also owns nine other ski resorts in North America, including Vermont's Stratton Mountain, Colorado's Winter Park and Quebec's Mont-Tremblant.

BLACKSTONE, CERBERUS INVEST IN SHIPPING VENTURE
The Blackstone Group and Cerberus Capital Management have teamed up with marine transportation services provider US Shipping Partners in a joint venture to build deep-water tankers for the domestic energy market. The two firms have contributed $430 million (€336 million) of the $500 million joint venture, including $105 million of equity and $325 million of senior debt, according to reports. The investment will give the firms a combined 60 percent stake in the venture, and Blackstone will own 75 percent of that investment.

CARLYLE/RIVERSTONE IN THIRD GAS PLATFORM
The Carlyle Group's and Riverstone Holdings' third energy fund, Carlyle/Riverstone Global Energy and Power Fund II, will commit $200 million (€156 million) to the Texas-based energy company Legend Natural Gas III. Legend will use the funds to acquire and develop onshore energy properties, primarily in the Southern Texas gas sector. It's the third Legend venture that Carlyle/Riverstone has invested in since 2001. Legend was formed in 2001 with $100 million in funding commitments from Carlyle/Riverstone's first two funds. Legend I was bought in August 2004 by Chesapeake Energy in an all-cash transaction for an undisclosed amount.