With HCA IPO, Bain, KKR and BAML Could Triple Their Money–On Paper, Anyway

Who wins with the HCA IPO? The PE firms do, that’s who.

Hospital operator HCA is expected to go public early next month (we’re hearing the pricing happens on March 9) and the offering represents a boon to its sponsors.

HCA, in case anyone has forgotten, was acquired by an investor group– comprised of Bain Capital, Kohlberg Kravis Roberts & Co., Merrill Lynch Global Private Equity (now BAML Capital Partners), and affiliates of HCA founder Dr. Thomas Frist—in November 2006 for about $33 billion. The buyers invested $5.3 billion equity in the deal, according to SEC filings.

The consortium has already made back most of their investment. Last year, HCA issued three dividends where it paid its shareholders $4.35 billion. This includes a distribution of $1.75 billion in Jan. 2010, another $500 million in May and about $2.1 billion in November.

By our estimates, the buyers, with the IPO, would be tripling their 2006 investment, between real and paper gains, while retaining sizeable stakes.

With the offering, HCA plans to sell 124 million shares at $27 to $30 each. The company itself is offering 87.7 million shares, while selling stock holders—which include Bain, KKR and BAML– are providing roughly 36.3 million shares. Underwriters on the deal have the option to buy another 18.6 million shares.

The buyer group stands to make roughly another $1.5 billion via the IPO. Here’s how:

About 97% of HCA is currently owned by Hercules Holdings, which is the investor group that includes Bain, KKR, BAML Capital and Frist.

Bain, KKR and BAML each owns about 25%, or 105.3 million shares, of Hercules. Bain, KKR and BAML are each selling 11.2 million shares in the IPO and, at $28.50 each (the mid-point of HCA’s IPO range), generating proceeds of $319.2 million each. If the greenshoe is exercised, Bain and KKR (which are selling 4.6 million shares each), could each get another $131.1 million.

BAML, because it’s selling more shares, 7.3 million, through the overallotment option, could realize $208.5 million (BAML may also get another $25.7 million through the sale of shares from its BofA holdings).

Frist affiliates stand to receive about $20 million, which includes roughly $15.1 million from the sale of shares through the IPO and another $5.8 million from the greenshoe.

Hercules will see its stake fall to 360 million shares, or 69.8%, after the IPO and the greenshoe. At $28.50 a share, Hercules’s holding would be worth about $10.2 billion.

In all, the group stands to make about $1.5 billion through the IPO (see table). Including the $4.35 billion from dividends and the value of its remaining stake ($10.2 billion), the investor group has tripled its money.

Officials for Bain, BAML and KKR declined comment. HCA did not return calls for comment.

Nashville-based HCA expects to receive about $2.4 billion in net proceeds from the IPO. It plans to use the cash to pay off debt and for general corporate purposes. Even if HCA tops out at $30 a share (and receives $2.6 billion), it won’t have enough to make much of a dent in its long-term debt, which stands at $28.2 billion as of Dec. 31.

The company operates 164 hospitals, including 158 general, acute care hospital, five psychiatric and one rehab. HCA is expected to have a $14.7 billion market cap after the IPO.