DaVita in the Market for Acquisitions

On an Aug. 2 investors’ conference call, DaVita’s chief financial officer Luis Borgen said, “We are currently in discussions to do a medium-sized dialysis acquisition.”

It’s unclear whether DaVita is targeting a company or a collection of individual clinics. In fact, it may not even be a done deal.  “It may happen, it may not happen,” DaVita CEO Kent Thiry said during the second quarter earnings call. “We bring it up only because we anticipate questions about what we’re going to do with the cash on our balance sheet.”

In the rolling 12-month period ending June 30, DaVita had a free cash flow of approximately $692 million.

Digging for clues, one caller asked how the recently released bundle rule could affect dialysis acquisitions, and Thiry said with “the uncertainty around change like this, which of course is reduced in many ways now that the rule is out but still there because of all the things that might happen with the innovation that the rule will provoke, I think that will lead to more deals getting done, particularly smaller ones. We, in fact, have done more small acquisitions in the first six months of this year than we have for some time.”

During the second quarter of 2010, DaVita acquired 23 centers, according to their second quarter earnings news release. In addition, Borgen said during the conference call that DaVita spent $91 million on dialysis center acquisitions during 2Q.

It may be too early to see if the new bundle will cause a new wave of consolidation, but it seems some providers are placing themselves in a position to acquire. One example is Fresenius, who doubled its budget for acquisitions to as much as $400 million, according to a Feb. 24 report from Bloomberg.

Other recent deals could also provide some insight into bundling’s potential affect on consolidation. Earlier this summer, U.S. Renal Care Inc. completed its $110.25 million acquisition of Dialysis Corporation of America Inc. Within the last year, Renal Advantage, which acquired National Renal Alliance in 2009, has acquired 12 clinics. And in March, private-equity firm Centerbridge Partners LP acquired American Renal Associates from Pamlico Capital.

Things on the acquisition front could certainly heat up, especially before the bundling rule’s January 2011 implementation. For now, though, it’s wait and see.