Tenet Healthcare (THC) to Acquire SurgCenter Development and Establish Long-Term Development Partnership

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Tenet Healthcare Corporation (NYSE: THC) and its subsidiary United Surgical Partners International (USPI) announced today that they have entered into a definitive agreement with the executives of SurgCenter Development (SCD) to acquire SCD. Under the agreement, Tenet / USPI will acquire SCD’s interests in 92 outpatient surgery centers (ASCs) and other related outpatient support services (collectively, the portfolio).

The USPI and SCD leadership will also enter into a five-year partnership and development agreement designed to provide seamless continuity and support to SCD facilities and physician partners for years to come. Going forward, USPI also has the exclusive option to partner with SCD on de novo development projects during the term of the agreement.

The transaction follows the successful acquisition by USPI of 67 SCD centers since 2009.

“We are extremely pleased to announce this transformative transaction and partnership, which builds on USPI’s position as a premier growth partner and SCD’s track record of developing high quality centers with leading physicians, ”said Saum Sutaria, MD, CEO of Tenet Healthcare. “By welcoming these centers into our company, USPI will maintain its reach as the largest outpatient platform for musculoskeletal services, a rapidly growing range of services. We are also creating a path for future expansion through a partnership that combines the development of experts and the operational capabilities of our two organizations. “

“SurgCenter was founded on a commitment to empower leading physicians by developing highly efficient facilities – for three decades we have been on this commitment and plan to continue to do the same in the future,” said Gregory George, MD, Ph. D., co-founder of SCD. “Our relationship with USPI is now well into its second decade. The partnership we announced today expands that relationship and allows us to continue to support our current physician partners by leveraging the best aspects of the USPI and SCD, while remaining committed to developing de novo centers that put the doctors, safety and high quality care at the center of the patient experience.

“We look forward to adding another portfolio of high-quality and well-established DCS Centers, as well as those in various stages of development,” said Brett Brodnax, President and CEO of USPI. “This transaction was made through our shared commitment to quality, safety and providing a cutting-edge experience to our patients and physicians. We are delighted to continue our long-standing relationship in partnership with the SCD Directors, who have an extremely effective development engine to expand our care network.

Acquisition of ownership of the MSK-focused ASC portfolio

Tenet / USPI will acquire SCD’s interests in 92 ASCs and related outpatient support services for approximately $ 1.2 billion. SCD has a minority stake of around 39% on average in 86 of the ASCs and a controlling stake of around 55% on average in six of the ASCs. Tenet plans to finance the transaction through the issuance of senior secured notes. The transaction is expected to close in the fourth quarter of 2021, subject to customary closing approvals and conditions.

In addition, over the next few months, USPI plans to offer to acquire a portion of the stakes in CHWs from physician owners for additional consideration of up to approximately $ 250 million. Assuming the successful acquisition of the physician interests, Tenet will consolidate the results of the centers in which USPI has a controlling interest in its financial statements.

The centers to be acquired are located in 21 states, offering USPI expansion into high growth regions of Arizona, Florida and Texas; increased density in the relatively newer markets of Ohio, Indiana, Wisconsin and Maryland; and provide a scalable entry point into Michigan. The portfolio includes 65 mature centers, as well as 27 that have opened in the past year or will start performing their first cases in 2022.

The centers’ range of cases has an attractive split across multiple service lines where USPI has demonstrated expertise, including approximately 80 percent in musculoskeletal care, such as total joint and spine procedures. This complements a robust service offering within the broader USPI platform in the areas of gastroenterology, ophthalmology, ENT, general surgery and other specialized procedures.

Following the addition of the portfolio, USPI will have more than 440 facilities in 35 states.

Continuation of the relationship with SCD through a new ASC development partnership

With the development of more than 200 centers since its creation in 1993, SCD intends to continue this trajectory with the de novo ASCs and this new partnership with the USPI.

The terms of the transaction include entering into a new development agreement under which USPI will partner with SCD for the future development of a minimum target of at least 50 centers over a five-year period. The development of these new centers will generally be led by the same group of SCD directors responsible for the growth and success of the portfolio to date. With each center, USPI will have the exclusive option of securing an immediate ownership position upon development with an additional option to purchase SCD’s stake 18 months after the opening of these facilities.

In addition to the partnership between SCD and USPI for future de novo facilities, USPI plans to continue to make additional acquisitions and de novo developments in partnership with physicians and healthcare systems, while generating attractive organic growth.

Financial profile

The transaction will further diversify the composition of Tenet’s Adjusted EBITDA, with more of it coming from its higher margin outpatient portfolio. Tenet expects transaction to generate strong financial returns, including improved adjusted EBITDA margins and free cash flow. The Company expects to realize at least $ 45 million in annual synergies over the next three to four years from the transaction.

Management discussion of the transaction via webcast

Tenet and USPI management will discuss this transaction in a webcast scheduled for 5:30 p.m. Eastern Time (4:30 p.m. Central Time) today, November 8, 2021. Investors can access the webcast via Tenet’s website at www.tenethealth.com/investisseurs. The slide presentation associated with the above webcast and a copy of this press release will be available on the Company’s investor relations website. A replay of the webcast will be available on the website for approximately 30 days.

Goldman Sachs & Co LLC acted as financial advisor to Tenet, and Willkie Farr & Gallagher LLP as legal advisor.

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