Roy Moore
Nashville Business Journal
Hud Connery is taking Essent Healthcare back into the hospital acquisition game, aided by a revamped development team.
The $340 million Nashville company has brought in Gregory Schonert and Austin Craun to find development opportunities.
CEO Connery's new executives have backgrounds in REIT financing and health care analysis. He'll need them both because, for every potential deal, the company has to look at a dozen others. "You've got to turn over a lot of stones," Connery says.
Earlier this month, Essent closed on its purchase of Greene County Memorial Hospital, a 54-bed facility near Pittsburgh that has since been renamed Southwest Regional Medical Center. Essent has also expressed interest in a North Carolina hospital HCA is leaving, putting the company in competition for the deal with other area providers.
Industry watchers shouldn't expect Essent Healthcare to morph into a fast-growth company that cobbles together properties across the country. Essent, whose five hospitals could grow Essent into a $400 million company by themselves, was in the running for another Pennsylvania hospital, but walked away because the deal didn't make any sense.
"We remain very deliberate. Some would call us cautious and deliberate, and I don't mind that label," says Connery, who earlier served as chief operating officer at HealthTrust, a Nashville chain that grew to 110 hospitals before merging with HCA.
Essent has garnered that label for adding only a few hospitals while others in Nashville went on spending sprees to piece together portfolios of hospitals. That cautiousness was highlighted in a decision to effectively shut down the acquisition pipeline after the sizable purchase of a hospital in Paris, Texas, nearly two years ago.
After that deal, which brought a lender and investor into Essent, Connery wanted to take a step back and integrate the facility into his company. With that point reached, Essent is returning to acquisitions, but officials aren't forecasting the number of centers they want to add.
The company is unique in the areas it targets. While most of the Nashville chains look for opportunities in the Sun Belt, Essent mostly has shunned those opportunities, believing the prices are too high. Instead, Connery treads into the Northeast and more mature communities, such as Paris, Texas, where the valuations are more reasonable and the returns are just as strong.
Because these areas don't have the growth rates of the Sun Belt, they've been passed over. Plus, there are the high regulatory hurdles that lie in New England. Essent's Sharon hospital became the first for-profit medical center in Connecticut and required the approval of the state's attorney general.
But Schonert, Essent's senior vice president of development, sees opportunities in these areas. They have a good payer mix, a large population and a high number of older residents. In Haverhill, Mass., where Essent owns Merrimack Valley Hospital, there are only four community hospitals for an area the size of Nashville, and Connery brags about transforming Merrimack into a top 100 hospital nationally.
Moving into older areas does bring its challenges, however. All of Essent's hospitals are more than 100 years old and the communities there tend to have a strong attachment to them. Because of their age, these hospitals need a capital infusion to end their runs of losses. "Rarely is a hospital put on the market for sale that's doing well," Connery says.
For these communities, the goal is to keep the hospital open. Don Headlee, chairman of the Greene County hospital board of trustees, says the deal with Essent allowed the community to keep its hospital and benefit from the sale's proceeds. Tough measures were needed to turn the hospital around, including union agreements with the nurses, 50 of whom left on the first day.
"This is a marathon. This isn't a 100-yard sprint," Connery says. "These hospitals are in pretty bad shape. It doesn't get done in a day."
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