Cerberus

Cerberus, in Greek and Roman mythology, is a three headed serpent-dog that guards Hades, the underworld.  Its role is to prevent escape.

Interesting name for a company.

The announcement that the investment firm named Cerberus is acquiring the not-for-profit Catholic hospital chain, Caritas, seemed to catch everyone by surprise late last week.  The investment company has agreed to invest $830 million into the six-hospital organization and will assume pension obligations, debt requirements, operational funds and $400 million for capital projects.

What were they thinking?

And can they compete with a local and very established not-for-profit hospital economy fueled largely by Partners, itself embarking on a $4 billion capital improvement campaign to further enhance its market leading position in the industry?  Under the leadership of CEO Ralph De Le Torre, Caritas has been on a roll, turning the corner in terms of profitability, repositioning itself with managed care payers, expanding profitable surgery lines and cutting expenses.  But, to compete, further capital investments are necessary in their facilities throughout Eastern Massachusetts.

Caritas gets the $830 million it needs, but what does Cerberus get?  In all likelihood, they’ll have a chance at revitalizing a network that will be worth even more in a few years when they will most assuredly look to sell… assuming they can.  The real carrot here could be Dr. De Le Torre himself, who will stay on and advise the firm on hospital acquisition possibilities across the country.  The buzz on Wall Street is that Cerberus is betting that the new health reform law will help to improve the viability of underperforming hospitals who have tended to care for the historically underinsured populations and, therefore, have struggled financially.  If there are a bevy of such facilities throughout the country, then the time to buy could be right now.  Having a proven medical leader in De Le Torre may just prove to make an $830 million investment in a six hospital Catholic chain in Massachusetts seem like pocket change. 

The three headed beast is taking quite a chance on that possibility.