Shares of the Franklin-based hospital chain rose 21 percent on Wednesday to $29 per share after reports that the company was in buyout talks with Bain Capital, one of several private investment firms that bought hospital giant HCA here four years ago.
In response to that initial report by the Wall Street Journal , Psychiatric Solutions confirmed that unnamed third parties have approached it about a potential acquisition. The company said it has retained Goldman Sachs & Co. and Shearman & Sterling LLP as financial and legal advisers.
Several other Nashville-area household brand names have been snapped up in a wave of buyout deals in the last few years, before the 2008 credit crisis temporarily dried up debt financings.
Frank Morgan, an analyst with RBC Capital Markets in Brentwood, wasn't surprised by Psychiatric's disclosure. It comes as the company has ridden the ebbs and flows of the stock market's reaction to scattered reports of juvenile health concerns at some of its facilities last year and Wall Street concerns about 2010 profit forecasts.
But Morgan said Psychiatric Solution has a strong cash flow, and that makes it a good candidate for a buyout, since any suitor could borrow against it to cover a significant portion of the purchase price.
"It's a business that has really good cash flow that's stable and growing, and the industry's fundamentals are good; yet, the market value has been volatile on any given day from a newspaper article or from a one-cent earnings miss in a quarter," Morgan said.
The company said last month that profits increased 15 percent in the fourth quarter, but its earnings of 49 cents per share for the three-month period were slightly below analysts' expectations.
Psychiatric Solutions said there's no assurance a sale of the company will take place. A spokesman for Bain Capital also declined to comment. Last week, Bain agreed to buy Styron, a Dow Chemical unit that makes plastics and rubber, for $1.63 billion in cash.
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