Kenn George, you've just sold your hospital company, Epic Healthcare Group, for $1 billion to Healthtrust-The Hospital Co. What are you going to do now? Go to Disney World?
Nope, he's going to start an ambulance company, one of the hottest merger-and-acquisition fields today.
Mr. George lost his top job at Epic this month when Healthtrust bought the 34-hospital chain, but he personally took in $23 million as part of the buyout package.
Last year, Dallas-based Epic bought Stat Care Emergency Medical Services, a Houston ambulance company, for $1.4 million, and this month, Mr. George and his investors bought it back-as well as options to acquire three other Houston ambulance companies-for $6 million.
Chasing ambulance companies. Mr. George, who declined to be interviewed for this article, isn't the only investor chasing ambulance companies.
Funded largely by Wall Street investors, four companies-generally referred to as "consolidators"-are buying up ambulance companies, slashing overhead to boost profits and spawning similar start-ups that aim to do the same.
The companies-American Medical Response, CareLine, Rural/Metro Corp. and Laidlaw-hadn't even started in this business until a few years ago. Now, those top four firms are estimated to control as much as 15% of the $5 billion in emergency medical services/medical transport revenues, according to Fitch Associates, a Kansas City, Mo.-based consulting firm that specializes in the industry.
The promise of creating economies of scale by melding fragmented healthcare sectors has worked magic to raise money for consolidators in hospitals, home healthcare, outpatient centers and medical groups. So, it's no surprise that the response time of investors to fund ambulance "consolidators" was equally speedy.
Cost, quality and convenience-attributes that are important in other industries-are driving consolidation in the ambulance sector, said Jay Fitch, president of Fitch Associates. "The price you get when you buy one ambulance vs. paying for 300 ambulances is very different," he said.
Crowded field.Some 15,000 companies operate in the emergency medical services/medical transport business, according to Mr. Fitch.
Boston-based American Medical Response started the acquisition craze, raising $25.5 million in its initial public offering in August 1992. To illustrate how companies such as American Medical are changing what had been a cottage industry, the company is using global positioning satellite systems to deploy ambulances, Mr. Fitch said.
Last year, two more companies went public-Rural/Metro Corp., Scottsdale, Ariz., and CareLine, Irvine, Calif.
The other consolidator is Laidlaw, a Burlington, Ontario-based company that claims to be North America's largest school-bus operator and its second-largest hazardous waste-management service company. A $2 billion company, Laidlaw recently has been buying U.S. ambulance companies as well.
Business has been brisk for all of them. Last month, Rural/Metro Corp. filed a registration statement to raise another $22.5 million through a secondary stock offering. Part of the proceeds will fund the acquisition of a Rochester, N.Y., ambulance service.
CareLine, which raised $48 million in its initial public offering in December, agreed last month to buy LifeFleet, a Newport Beach, Calif.-based ambulance firm, for $93 million. LifeFleet is a subsidiary of Secomerica, a publicly traded Japanese security and protection company.
Earlier this month, CareLine sold $75 million in subordinated notes to partially finance the deal, which is expected to be completed June 1.
CareLine's president and chief executive officer, M. Keith Huzyak, was president of LifeFleet before forming CareLine in 1992.
Other ambulance firms are forming as well.
"I saw an opportunity to apply technology in a way that substantially reduces cost," said Donald E. Strange, a former Epic Healthcare Group executive who started Trans Care Corp. in December. Dallas-based Trans Care has raised more than $80 million in private equity and debt financing and is negotiating to buy six of the 24 ambulance companies in metropolitan New York. The six companies have $36 million in annual revenues.
"I felt there was an opportunity for a person with broader healthcare experience," said Mr. Strange, who had been a top executive at Hospital Corporation of America, U.S. HomeCare Corp. and Avon Products' healthcare subsidiary.
Founders of the other consolidators came from the ambulance business or other ventures.
In addition, Welsh, Carson, Anderson & Stowe, a well-known venture capital firm, owns a majority interest in AmNet, a Boston-based ambulance company. Since New York-based Welsh, Carson bought into the company 17 months ago, AmNet has bought an ambulance company in New Jersey and has a letter of intent to buy a second in that state.
Hospital alert.Although only 13% of ambulance companies are owned by hospitals, hospital executives need to stay attuned to the consolidation occurring in that business, experts say.
For example, hospitals often contract with ambulance companies to transfer patients to other hospitals. That may become even more important as hospitals form managed-care networks and move patients to the most appropriate and least-cost setting. For example, a patient may need to be moved from a tertiary-care hospital to a nursing home or a subacute facility.
It's probably no accident that this consolidation is taking place now, when universal coverage is dominating the national healthcare reform debate.
Ambulance companies write off as much as 40% of their bills to bad debt. If Congress passes a bill that pays for needed healthcare-including emergency medical services-those unpaid bills could become incoming revenues.
"It would be icing on the cake, but nobody's really banking on that," said Robertson, Stephens & Co. analyst Sheryl Skolnick. Most of the profits will come from reducing duplicative overhead at the ambulance companies, she said.