Vanguard can’t replicate HCA success

June 22, 2011, 10:41 PM UTC

Hospital operator Vanguard Health Systems (VHS) went public today, raising $450 million in its IPO. Sounds impressive, but the $18 per share price was well below Vanguard’s proposed $21-$23 per share range. Moreover, its $1.29 billion initial market cap is about 26% smaller than what The Blackstone Group (BX) paid to acquire Vanguard back in 2004.

So, what happened? In an acronym: HCA.

The rival hospital operator went public this past March, raising a whopping $3.79 billion. Since then, its stock has traded up a modest 10%. At the time, I wrote the following:

Public investors have been clamoring for a large, successful hospital operator ever since HCA went private in 2006 for $33 billion.

“That deal sucked a lot of the equity out of the hospital sector,” explained one healthcare investment banker. “There are lots of smaller players, but I think people have been waiting for the big dog to return.”

In other words, most traders want some hospital exposure, but not too much. If you can get in with the leader, that’s probably good enough. In fact, one healthcare investor told me after HCA that other PE-backed operators like Vanguard and IASIS Healthcare (owned by TPG) would probably price IPOs within the next year, but without anything close to HCA’s success. Looks like he was right. As of last check, Vanguard was trading higher than its IPO price, but only be 30 cents.