Surgery Partners Acquisition: Buyer Waives Charity Defense

Bon Secours Mercy Health, the nonprofit hospital system behind the $23.50-a-share buyout of Surgery Partners, has given up any defense that its charitable status or public health mission could keep a court from forcing it to close. The merger agreement also contains no break fee payable by the buyer, only one that Surgery Partners would owe: $108,986,842.

Both terms sit in the merger agreement dated Friday, Oct. 23, which Surgery Partners filed with the SEC on Monday. The buyer is Spyglass Topco, LLC, tied to HealthSpan Partners, which the joint announcement calls an affiliate of Bon Secours Mercy Health. The deal values Surgery Partners at about $5.7 billion including debt and is expected to close in the first quarter of 2027.

The Charity Waiver

Section 11.13 says Bon Secours Mercy Health, as guarantor, waives any defense to specific performance based on its nonprofit status, fiduciary duties to its charitable beneficiaries, or claims that the order would divert resources from its public health mission. In Section 5.04 the buyer also states that a court order compelling performance will not violate the guarantor's 501(c)(3) tax-exempt status, governing documents or charitable mission.

Our read: a charity could otherwise argue that a multibillion-dollar purchase conflicts with its duties. The waiver closes that argument and lets Surgery Partners ask a court to compel the closing instead of settling for a fee.

A One-Way Break Fee

Section 11.04 sets one fee. Surgery Partners owes $108,986,842 if the buyer ends the deal after the board changes its recommendation, or if Surgery Partners ends it to accept a superior proposal. It also owes the fee if a public rival bid precedes a failed vote or a missed end date and a competing deal is signed or completed within 12 months. For that last trigger the proposal threshold rises from 15% to 50%.

The buyer owes nothing comparable if regulators block the deal. Its exposure is damages: the agreement treats a failure to close when required as willful breach, and damages can include the lost value of the $23.50 price if specific performance is not sought or granted. Other recent deals priced that risk in advance. ICE owes MarketAxess $327.4 million if antitrust law stops its deal, as our MarketAxess analysis covered, and Salesforce owes Braze $300 million under terms in our Braze story.

The merger agreement lists 128,874,796 shares outstanding on Oct. 21, excluding restricted stock. At $23.50 that is about $3.03 billion, so the fee is about 3.6% (TradeFlock calculation). Measured against only the shares Bain does not hold, about $1.85 billion, it is about 5.9% (TradeFlock calculation).

A Vote Bain Cannot Swing

Approval needs two votes: a majority of all outstanding shares and a majority of votes cast by disinterested stockholders as defined in Section 144 of Delaware law. The 8-K says that group excludes Bain, the buyer's affiliates, directors and officers. The agreement also calls for a Schedule 13E-3, the going-private disclosure form.

Bain's Schedule 13D amendment shows 49,946,972 shares held on Oct. 23. That is about 38.8% of the Oct. 21 share count (TradeFlock calculation). Bain signed a support agreement and will roll those shares into the buyer rather than take the $23.50. At the deal price the rolled stake is worth about $1.17 billion (TradeFlock calculation). Everyone else gets cash.

Antitrust Terms

Section 8.01 obliges the buyer to take any and all action needed to clear antitrust objections, including litigating and divesting Surgery Partners assets. Two limits apply. The buyer need not take steps with more than an immaterial impact on assets or operations of the guarantor, the buyer or their affiliates other than Surgery Partners. Nor must it accept anything expected to cause a material adverse effect on the combined business. The guarantor controls antitrust and healthcare regulatory strategy.

The buyer must file under the Hart-Scott-Rodino Act within 20 business days. The outside date is July 23, 2027, and it extends automatically to Oct. 23, 2027 if only the antitrust conditions remain open. Financing is not a condition to closing. The buyer has a debt commitment letter, and the release says Jefferies provided committed financing as sole initial underwriter.

Who Advises Whom

Per the release, Centerview Partners is lead financial adviser to Surgery Partners, with Leerink Partners also advising it. Moelis advises the special committee of independent directors that led negotiations. Jefferies is exclusive financial adviser to HealthSpan Partners, the buyer side. Barclays and J.P. Morgan advise Bain Capital, not the company or the buyer.

What Is Still Missing

No proxy statement is on file, so the sale process, any fairness opinions and the vote date remain unknown. The filings do not state a premium. Proactive Investors calculated one of about 49% to a $15.75 prior close, based on reported share price movement. We have not verified that price from a filing.

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