Universal Health Services to buy Ascend Health for $500 million in cash

Universal Health Services Inc., of King of Prussia, is pushing further into behavioral health, announcing Monday that it had agreed to pay $500 million in cash for Ascend Health Corp., which operates eight inpatient psychiatric hospitals and one substance-abuse treatment center.

The planned acquisition, which includes facilities in Texas, Arizona, Utah, Oregon, and Washington, builds on Universal Health Services' $3.1 billion purchase of Psychiatric Solutions Inc. in November 2010. That deal made Universal Health Services (UHS) the nation's largest provider of behavioral-health services, according to the company.

UHS has 198 psychiatric facilities, including six in the Philadelphia area. UHS is also among the nation's largest operators of for-profit hospitals, with 23 acute-care hospitals, but none in the Philadelphia region.

"We are thrilled to add Ascend's high-quality assets to our strong portfolio of behavioral-health facilities," UHS chairman and chief executive Alan B. Miller said. He said UHS expected to complete the deal in this year's fourth quarter. Ascend's operations are expected to add to UHS's earnings immediately. Including the assumption of debt, the value of the deal is $517 million.

The overall market for inpatient mental-health services is worth $20 billion, according to a recent investor presentation by Steve Filton, UHS's chief financial officer. That is minuscule compared with the $2.6 trillion spent overall on health care in the United States, but Filton estimated that UHS accounted for 15 percent to 20 percent of the behavioral-health market, which has the advantage over acute-care hospitals of requiring relatively little capital investment.

UHS did not disclose Ascend's revenue, but Ascend's chief executive and founder, Richard Kresch, said at a UBS investor conference in February that Ascend's revenue at the time was about $200 million a year. UHS, by contrast, had $3.4 billion in revenue from behavioral-health facilities last year and $4 billion in revenue from acute-care hospitals.

Founded in 2005, Ascend is based in New York and is owned by several private-equity firms, which had invested $36 million in Ascend through February, when the company had $33 million in debt. Kresch said Ascend's profit margin, based on so-called EBITDA (earnings before interest, taxes, depreciation, and amortization), was in the mid-20 percent range.

Ascend built five of its nine facilities, which have 867 beds. That enabled Ascend to pick the best markets for its services, Kresch said.

Darren Lehrich, an equity analyst who follows UHS for Deutsche Bank, said in a research note that he viewed Ascend as "a very high quality asset" that could boost UHS's earnings per share next year by 4 percent.

Shares of UHS closed Monday at $37.89, up 59 cents, or 1.6 percent.