Envision Healthcare (NYSE: EVHC) officially merged with AmSurg Corp. (NYSE: AMSG) in December 2016. The $2.35 billion merger disappointed EVHC investors who were looking for a buyout by a larger company. But if they stick with EVHC, they may see some more trades soon.
Envision Healthcare discussed its Q4:16 and full 2016 results on February 28, 2017. In the announcement, the now-combined company disclosed it was seeking to spin off either its medical transportation company, AMR, or its ambulatory surgery center division.
Those are its smaller divisions, now that the merger is complete. The rebranded Envision Physicians Services accounted for 63% of the combined companies’ revenue of $3.7 billion in 2016. Medical transportation contributed 24% and the ambulatory surgery centers brought along by AmSurg accounted for just 13%.
On April 18, 2017, Envision announced it was subsuming AmSurg’s Sheridan brand, covering the leagues of anesthesiology practices that company acquired through the years. The planned phase-out cost Envision shareholders $221 million in Q4:16, including retiring the Sheridan name, transaction and integration costs. Oh, and assumption of debt.
Envision has set aside $900 million to keep acquiring physician practices in 2017. That may be optimistic, given MEDNAX‘s (NYSE: MD) recent Q1:17 reports that missed analysts’ expectations. MEDNAX announced preliminary adjusted earnings per share of $0.75, compared with previous guidance of $0.86 to $0.90.
The serial acquirer of neonatology and anesthesiology practices pointed to a tight labor market for clinical staff, as the pool of advanced practitioners thins and nurse practitioners are demanding higher pay. Squeezing margins only goes so far, when the costs saved are directed to another quarter, not banked.
In Q1:17, the Physician Medical Group sector posted a 109% increase in deal volume, compared with the year before. There’s no reason to believe that pace won’t continue into Q2:17 and beyond. But it’s not without some consequence to the companies, hospitals and health systems who are doing the acquiring.
No, it’s not the 1990s all over again. But publicly traded companies need to watch their costs, just like their predecessors two decades ago.
