The possibilities for initial public offerings in 1994 may be InPhyNet, but they probably won't be Nationwide.
InPhyNet is a Fort Lauderdale, Fla.-based emergency room management firm that plans to raise about $48 million in its initial public offering later this month.
However, InPhyNet's deal will be marketed to an increasingly persnickety bunch of healthcare investors. That was evident in mid-July when Nationwide Care, an Indianapolis-based chain of 24 nursing homes, pulled its offering, citing market conditions.
Narrow window. "As interest rates are ticking up, there's considerable nervousness in the market," said John Runningen, healthcare analyst at Robinson-Humphrey Co., Atlanta. "There's a narrow window (for IPOs), and some are wondering whether the window will close completely."
In the first half of the year, healthcare providers raised nearly $550 million in initial public offerings (See chart). The biggest drawing card for investors was H&R Block's spin-off, Interim Services, which raised $200 million.
However, the Fort Lauderdale-based Interim generates only half of its $427 million in annual revenues from healthcare, specifically temporary staffing in hospitals and home healthcare services. The remainder is derived from temporary office staffing services.
Another temporary staffing company took off in the first half: Career Staff Unlimited, a Houston-based firm that fills needs in the shortage-plagued staffing area of occupational and physical therapists. Career Staff's IPO raised $22.5 million.
Discriminating market. However, analysts say the market is casting a discriminating eye on new deals.
"There's a weakness in the overall market," said Chris Caton, a healthcare analyst with McDonald & Co., the Cleveland-based investment banking firm that was underwriting the Nationwide deal. IPO companies this year will have to show that they "can truly add value or can lower the cost of care," he said.
Another factor is that long-term-care and subacute companies have raised such a large amount of equity financing in the past 18 months that it might be difficult for new companies to come to market, he noted.
Gone public. Last year, four companies in the long-term-care/subacute/rehabilitation segment went public: Marine Health Group, Sun Healthcare Group, Arbor Health Care Co. and Multicare Co.
In addition, two nursing home companies already went public this year. Evergreen, a Carmel, Ind.-based chain with 79 nursing facilities in 10 states, and Advocat, a Brentwood, Tenn.-based chain of 71 facilities.
Another first-half IPO related to that area was Theratex, an Atlanta-based subacute rehabilitation provider for nursing homes, which raised $48 million.
Plus, several established companies raised money in secondary offerings. The most notable was last month's $197 million equity and bond deal by Integrated Health Services. The Owings Mills, Md.-based firm provides subacute and rehabilitative services through 148 facilities in 18 states.
Also this month, Summit Care Corp., Burbank, Calif., raised $28.6 million in a secondary offering.
Managed-care wild card. The wild card for second-half IPOs may lie in managed care, where investment bankers are seeing blue, as in Blue Cross and Blue Shield.
In June, the insurers' national association lifted its ban on member plans becoming publicly traded companies. The 69 Blues plans nationwide generate an awesome $71.2 billion in annual revenues, just the kind of numbers Wall Street-types would love to sink their teeth into.
Two Blues subsidiaries had already gone public before the restriction was lifted. Currently, another is ready. New York-based investment banking firm Morgan Stanley is leading a deal to raise about $45.5 million in an IPO for RightChoice Managed Care, a subsidiary of Blue Cross and Blue Shield of Missouri, St. Louis.
Ironically, the first half of 1994 was bereft of managed-care IPOs. CareFlorida Health Systems, a Miami-based HMO, was leaning that way, but instead opted for a $250 million bid from Foundation Health Corp., Rancho Cordova, Calif.
On the hospital side, Quorum Health Group, Brentwood, Tenn., completed its public offering, and Seattle-based Brim, another hospital management firm, has its IPO in the works.
The universe of investor-owned hospital companies has been shrinking thanks in large part to companies such as Columbia/HCA Healthcare Corp., Healthtrust-The Hospital Co. and OrNda HealthCorp, all of which completed major acquisitions earlier this year.