IPO Report: Envision Healthcare (EVHC)

Four IPOs were scheduled for the week of August 12. The full IPO calendar can be found at IPOpremium.

Envision Healthcare ($EVHC) is based in Greenwood Village, CO.  EVHC scheduled a $753 million IPO with a market capitalization of $3.6 billion at a price range mid-point of $21.50, for Wednesday, August 15, 2013.  

The S-1 was filed July 31, 2013.  The manager and joint managers are Goldman; Barclays; BofA Merril and Citigroup.  The co-managers are Credit Suiss; Deutsche; Morgan Stanley; UBS; Jefferies; Avondale Partners;  Oppenheimer;  Cantor Fitzgerald;  Natixis;  William Blair; and Drexel Hamilton.

Summary

EVHC is a leveraged buyout combination of a large physician staffing service company, and a large ambulance company.

Valuation

63% of revenue and 80% of operating income is generated from the staffing business.  Therefore, the comparison to a large physician staffing company seems appropriate.

 Glossary

Conclusion

EVHC is the largest in the physician staffing business and is making money.  Some of the debt proceeds are allocated to working capital, and it is likely that some of the cash will be used to pay debt, which will increase earnings.  The rating on EVHC is buy.

Business

EVHC is a leading provider of physician-led, outsourced medical staffing and ambulance services in the United States with more than 20,000 affiliated clinicians.

EVHC markets its services on a stand-alone, multi-service and integrated basis, primarily under the  EmCare and AMR brands.

EmCare, with 40 years of operating history and nearly 8,000 affiliated physicians and other clinicians, is a leading provider of integrated facility-based physician services, including emergency, anesthesiology, hospitalist/inpatient care, radiology, tele-radiology and surgery. EmCare also offers physician-led care management solutions outside the hospital.

EmCare – generates 63% of revenue and 80% of operating income

EmCare is the largest provider of contracted emergency department staffing and management to more than 400 hospitals in 40 states. EmCare manages emergency services for hospitals, including recruiting and hiring medical directors, doctors, and nurses and monitoring their performance. The company is expanding its hospitalist services — staffing hospitals with acute-care specialists. Emcare also provides anesthesiology services to surgery centers and teleradiology services to smaller regional hospitals. Other services include such administrative functions as billing, record keeping, and staff scheduling. EmCare is a subsidiary of Emergency Medical Services.

AMR – generated 37% of revenue and 20% of operating income

AMR, with more than 55 years of operating history and more than 12,000 paramedics and emergency medical technicians, is a leading provider and manager of community-based medical transportation services, including emergency (“911″), non-emergency, managed transportation, fixed-wing air ambulance and disaster response.

AMR Facts:  Number of employees: 16,458 Number of vehicles: 4270 Number of states: 40 and the District of Columbia Number of communities: 2100 Number of patient transports in 2012: More than 3 million

As of December 31, 2012, AMR had a 7% share of the total ambulance market and a 15% share of the outsourced ambulance market, the largest share among outsourced providers based on net revenue

Competition

EmCare

EmCare competes with both national and regional enterprises such as Team Health, Hospital Physician Partners, The Schumacher Group, Sheridan Healthcare, California Emergency Physicians, National Emergency Services Healthcare Group, and IPC.  EmCare also competes against local physician groups and self-operated facility-based physician services departments for satisfying staffing and scheduling needs.

AMR

In providing ambulance transport services, AMR competes with governmental entities, including cities and fire districts, hospitals, local and volunteer private providers, and with several large national and regional providers such as Rural/Metro Corporation, Falck, Southwest Ambulance, Paramedics Plus and Acadian Ambulance.

In many communities, the most important competitors are the local fire departments, which in many cases have acted traditionally as the first response providers during emergencies, and have been able to expand their scope of services to include emergency ambulance transport and do not wish to give up their franchises to a private competitor.

In 2011, the California state legislature passed legislation which may make public agencies eligible for additional federal funding for Medicaid ambulance transports. If these additional funds become available, it may provide an option to certain public agencies, including local fire departments, to enter into the ambulance transportation market or provide additional ambulance transports, which could increase competition in the California market.

5% pre-IPO stockholders

CD&R Affiliates, 97.6%

A CD&R Designee will serve as EVHC’s Chairman of the Board of Directors as long as the CD&R Affiliates own at least 30% of the outstanding shares of EVHC common stock

About CD&R  

Use of proceeds

$708.5 million, after deducting estimated underwriting discounts and commissions in connection with this offering and estimated offering expenses payable by EVHC of $4.0 million.

$450 million to repay debt.

$20 million for a termination fee to CD&R, the private equity owners.

Balance for working capital which may include debt reduction.