Buffett-backed DaVita acquires HealthCare Partners

DaVita, a US company that runs dialysis clinics, is to acquire HealthCare Partners, which operates physician groups in several US states, for $4.42bn, marking the latest merger in the rapidly consolidating healthcare sector.

The cash-and-stock deal will give DaVita, in which Warren Buffett has a stake, a way to broaden its reach beyond its core dialysis business.

HealthCare Partners operates in Florida, Nevada and California and oversees medical care for more than 600,000 patients. The private company generated $2.4bn in revenues last year.

DaVita has been working to expand its dialysis business, as a growing number of people with diabetes are expected to need treatment for their kidneys.

The acquisition comes as US healthcare companies have been seeking more "integrated" approaches to treating patients and have been seeking greater scale.

"DaVita currently executes on its integrated care mission with thousands of physician partners across the country for specialised kidney care services," said Kent Thiry, DaVita's chief executive, on Monday. "HealthCare Partners executes on that same mission across a full and deep array of healthcare services in three geographic markets. This combination will create a unique patient and physician-focused organisation."

The broader US healthcare sector has been rapidly consolidating in recent months, as drug companies look to cope with patent expirations and other parts of the industry work to find ways of reducing medical care costs.

Last week Agilent Technologies, the US medical device company, said it would acquire Dako, a Danish cancer diagnostics group, in a $2.2bn deal that would increase its presence in the life sciences industry.

AstraZeneca recently spent $1.3bn to purchase biotechnology group Ardea and companies such as GlaxoSmithKline and Roche have been seeking new targets.

Les Funtleyder, healthcare analyst at Miller Tabak, said that the DaVita deal could be risky because similar combinations were unsuccessful in the 1990s and because the "post-healthcare reform" landscape remains murky.

"A number of companies are taking steps to transform their business models to take advantage of the post reform era," Mr Funtleyder said. "The risk is that we don't have good visibility of what that will look like."

"This is a popular area for a legitimate long-term reason," Mr Thiry said. "Payers increasingly realised that they need to have integrated care if they're to bend the trend in costs."

DaVita's deal is expected to close during the fourth quarter of the year and the combined company will be called DaVita HealthCare Partners.

DaVita is paying $3.66bn in cash along with 9.38m shares of its common stock to acquire HealthCare Partners. JPMorgan Securities was DaVita's financial adviser.

Shares in DaVita rose 4.9 per cent to $84.80 in midday trading on Monday.