Happy Thursday, Hospitalogists. I'm spending the next couple of Thursdays (part 1 and part 2) on the most recent hospital operator to hit the public markets - Ardent Health! - Part 1 will cover Ardent's history, financial backers, key M&A moves, and footprint.
- Part 2 (next Thursday) will cover Ardent's strategy more in depth, growth and financial trends, valuation comparables, and commentary/thoughts from me.
- When Part 2 is out, I will publish it to the Hospitalogy site
Finally, a ton of research and analysis goes into these posts. If you find these valuable at all I'd love for you to pass them along to healthcare colleagues and friends! PS - Hospitalogy has some ad slots open over the next month or so. If you're interested in working with me shoot me a reply to this email! |
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SF friends! Come visit me on Wed 9/11 for HealthTech Hang's happy hour. I am cohosting with Harry Goldberg from HealthTech Hang and Ben Kromnick from Mercury. It's been a while since I have been in the Bay Area, and I would love to say hello! The first 20 folks to register get a free ticket with coupon code HOSPITALOGYVIP |
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Starting off as the Behavioral Healthcare Corporation, Ardent Health Services (and now known as Ardent Health Partners) has an interesting history and is a product of hospital consolidation, real estate investment trust (REIT) involvement, UAE minority investment, and now an IPO in 2024. The firm began as an owner and operator of psychiatric hospitals. Then, in 2001, Welsh, Carson, Anderson & Stowe (WCAS) bought a majority stake in the company, which set now-Ardent down its present day path. With fresh capital from going public and a new CEO David T. Vandewater at the helm (who retired in 2020), Ardent went on an acquisition spree, scooping up hospitals in the greater Albuquerque, New Mexico area (Lovelace Health System & Health Plan for $209.4M; St. Joseph Healthcare System for $97.2M) and Tulsa, Oklahoma area (Hillcrest Healthcare System for $332.8M). After these and smaller acquisitions, Ardent made a major strategic pivot. It divested its psychiatric hospitals in mid 2005 to Psychiatric Solutions (which was eventually bought by…Universal Health Services for $3.1B!). Along with going private, Ardent from this point forward focused exclusively on growth in the acute care space, targeting mid-size (under 2M people) MSAs. |
A Timeline of Ardent's Notable Moves |
Fast forward to implementation of the ACA, and Ardent was involved in the flurry of activity happening over the last decade. Based on my research, here's a timeline of how Ardent got to today: - May 2011: Ardent acquires New Mexico-based MedCath Heart Hospital, to integrate into its Lovelace Health System based in Albuquerque and add to Ardent's 220,000-member health plan in the region.
- September 2011: Ardent acquires 2 Oklahoma hospitals from CHS to integrate into its Hillcrest HealthCare System based in Tulsa
- October 2012: Ardent acquires 80% stake in Amarillo-based BSA Health System
- April 2015: Healthcare REIT Ventas acquires Ardent for $1.75B in an all-cash transaction from WCAS. Ardent was previously owned by Welsh, Carson, Anderson & Stowe and at the time, generated around $2B in annual revenue.
- As part of the transaction, Ventas separated Ardent's owned real estate from its hospital operations, entering into sale-leaseback arrangements on a triple-net basis with the 10-hospital footprint. Ventas also retained upside in future Ardent hospital acquisitions to own the associated land and building. The healthcare REIT also spun off Ardent's existing skilled nursing footprint.
It's interesting to note the value props Ventas laid out for its investors at the time in justifying the Ardent purchase, many of which are still present today including aging population demographics, relatively favorable CMS payment updates, a pipeline for growth assuming more Ardent hospital acquisitions, and more. |
- July 2015: The next significant move in Ardent's journey - Equity Group Investments acquires the Ardent hospital operations from Ventas (Ventas retains real estate and ~10% ownership in OpCo)
- Equity Group purchased Ardent in 2015 and since then has added to its holdings and more than doubled its revenue—to $4.4 billion in 2020, according to its website…EGI bought a majority stake in Ardent in 2015 for $475 million from real-estate investment trust Ventas Inc., which acquired it earlier that year and retained the real estate and a 9.9% stake in the operating company.
- Ardent named a new chief executive officer in July after its former CEO announced his retirement around a year ago.
- May 2016: Ardent announces plans to implement single Epic instance across all Ardent facilities, a $150M project - replacing 80 disparate systems
- October 2016: LHP Hospital Group merges with Ardent, creating the second largest privately owned for-profit health system in the U.S. by number of hospitals at the time.
- May 2017: Ardent forms JV with University of Kansas Health System to acquire St. Francis Health
- September 2017: Ardent Health and UT Health form a JV to acquire East Texas Medical Center Regional Healthcare System - at the time, 9 hospitals and 39 clinics - in Ardent's most significant M&A move to date.
- December 2018: Ardent files for IPO (2018 S-1)
- January 2020: Ardent withdraws its IPO registration
- Early 2021: Apollo-owned LifePoint (which, itself is a private, for-profit health system taken private in 2018 for a $5.6B EV) was in talks to buy Ardent in early 2021, which reportedly would have valued Ardent at over $2B including debt. 3 years later, Ardent's enterprise value sits at ~$4.7B in July 2024.
- February 2022: Ardent conducts a sale-leaseback with Ventas, its related party REIT shareholder, selling 18 medical office buildings to Ventas for $204M and entering into long-term lease arrangements with the now-minority shareholder.
- May 2022: Ardent expands RCM relationship with Ensemble Health Partners, with the initial term set at 7 years and renewed for two successive two year terms provided Ensemble executes its duties well. Total fees paid to Ensemble are based on a % of net cash collected and comprise less than 5% of Ardent's overall revenue.
- September 2022: Ardent receives a $500M minority equity investment from UAE-based Pure Health as deal between Alpha Dhabi Holdings and Equity Group Investments. Following the transaction, Pure Health and Ventas own 25% and 7.5% of the combined voting power of Ardent Health Partners
- January 2023: Ardent launches an innovation studio with SwitchPoint Ventures to build and scale new solutions across its portfolio and eventually spin them off as standalone companies.
- November 2023: Ardent gets hit with a system-wide ransomware attack, quantifying the pre-tax impact at $74M
- May 2024: Ardent appoints several new ambulatory services and compliance leaders, overseeing Ardent's ambulatory strategy including physician alignment, clinical operations, ASC growth and network development, and value-based care evolution
- July 2024: Ardent prices IPO at $16 / share (previous share range was $20 - $22 and a $3B+ implied market cap, signaling low investor appetite)
- July 2024: Ardent raises $192M in smaller than expected IPO - as the hospital operator was shooting for $300M
- What will it do with the raised cash? Working capital, paying down debt, and I would assume based on the recent appointments that Ardent would put some of the capital to work on network development (ASCs, physician alignment, urgent care acquisitions, ED buildout, and innovation)
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Footprint: Where is Ardent Today? |
This was Ardent's geographic footprint as of the end of 2018: |
And this is Ardent's geographic footprint today (note the omission of the market share metric in the updated version - sad days. Ardent still says they're 1 or 2 in market share in all of its markets): |
At the time, Ardent was the 4th largest privately held for-profit hospital operator in the U.S. (based on number of hospitals). In the trailing twelve months ended March 31, 2024, Ardent generated about $5.5B in net revenue. Ardent operates in 8 mid-sized urban markets / regions across 6 states: Texas, Oklahoma, New Mexico, New Jersey, Idaho, and Kansas. Today, Ardent owns and operates 30 acute care hospitals. Stats as of the end of Q1 2024: - Texas: 14 (Tyler, Amarillo, Killeen) - 36.4% of total Ardent revenue. 1,472 licensed bets (Ardent manages one hospital owned by the UT Health Science Center of Tyler - UTHSCT)
- Oklahoma: 8 (Tulsa, Oklahoma) - 24.2% of total Ardent revenue. 1,173 licensed beds
- New Mexico: 5 (Albuquerque, Roswell) - 15.5% of total Ardent revenue. 619 licensed beds
- New Jersey: 2 (Montclair, Westwood) - 10.3% of total revenue. 476 licensed beds
- 200 sites of care
- 146 primary care and specialty care clinics
- 3 ASCs
- 22 urgent care centers
- 2 freestanding EDs
- 10 diagnostic imaging centers
1,700 employed providers as of March 31, 2024 Ardent focuses on a JV model and called it out as a differentiator, saying pursuing joint ventures allows it to scale more efficiently and effectively while establishing new access points within its desired markets - 18 of its 30 hospitals operate under JVs
- 9 owned and operated through variable interest entities (VIEs)
- 9 majority owned with material minority interest from nonprofit medical systems, universities, academic medical centers, foundations, and/or a combination of these entities
- 9 hospitals associated with UT Health East Texas JV are wholly owned by the JV's members and are not VIEs
- Dollars tied to JV's include $1.6B of net revenue and $213.7M of net income (a very significant portion of earnings but also a potential source of strength given diversification)
Ardent holds 80 contracts containing some form of quality or value-based component across 220,000 covered lives (mostly in New Mexico) Notably, Ardent uses a single instance of Epic across all of its facilities, leading to data uniformity and better care coordination across sites. - We believe Epic makes us a more attractive partner for emerging technology providers and facilitates physician use of novel technology.
Wrapping up Part 1 So in summary, Ardent holds a nice little portfolio of market-leading hospital and ambulatory assets across multiple markets. The hospital operator has benefited from use of private investors, public markets, the UAE, and a real estate investment trust as sources of capital to acquire hospitals and develop its network within its markets. Despite the positive attributes and private investor interest, the public markets turned a bit of a cold shoulder to Ardent - why? I have some thoughts around supplemental payment dollars, growth expectations, valuation metrics against peers, and more. I'll dive into those thoughts with a little bit of commentary and analysis in part 2 next Thursday, so stay tuned for that. Board Room community members will get full access to all of my Excel data books and visuals. I also encourage you to dive into Ardent's most recent S-1, linked at the bottom below. It's a really good overview of hospital economics, regulatory considerations, supplemental payment dollars, key performance indicators, its joint venture strategy, and more. Ardent specific resources: FYE 2004 10-K https://www.sec.gov/Archives/edgar/data/1229505/000095014405009197/g95523e10vk.htm 2019 S-1 https://www.sec.gov/Archives/edgar/data/1756655/000119312519065643/d717537ds1a.htm 2024 S-1 https://d18rn0p25nwr6d.cloudfront.net/CIK-0001756655/3dc8ddf1-d41e-40e8-8d78-180e693aa4e1.pdf |
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Thanks for the read! Let me know what you thought by replying back to this email. — Blake |
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