Amid the ashes of government-mandated healthcare reform, investment bankers may soon be crowing with a new crop of initial public offerings coming to market.
Hospitals, as well as other healthcare services, are getting ready to cash in as investors flock to provider companies that see new opportunities unshackled by federal healthcare reform.
"It's no coincidence that we see all of these now. The market is warming up," said Tyler Wick, healthcare analyst in the Boston office of Advest, an investment banking firm.
New players. Although Wall Street is familiar territory for investor-owned hospital chains, not-for-profit hospitals are the new, somewhat odd bedfellows joining the rush, as evidenced by two recent IPOs.
Baylor University Medical Center in Dallas stands to earn as much as $10 million from a public offering by Physician Reliance Network, an oncology practice management company.
In September, Baylor purchased more than 1.5 million shares of stock in the company for cash and assets totaling $14.4 million. Physician Reliance Network expects to issue 3.3 million shares at $14 to $16 per share, which would bring the value of the investment to about $21.5 million. A price will be set in late November.
About $40 million of the expected $45.5 million in net proceeds will be used to repay outstanding debt. Any remainder will be added to $60 million available in revolving credit. Physician Reliance Network was created in 1993 as the management arm of Texas Oncology, which has an integrated network of 128 physicians in 26 offices and eight cancer centers in Texas. The company plans to create similar oncology networks in other states.
In addition, Sharp Healthcare, a San Diego-based not-for-profit health system that includes five hospitals, is a minority shareholder in FPA Medical Management, a San Diego-based firm that recently expanded into the Philadelphia area.
FPA, which manages primary-care physician practices, raised $10 million in its public offering two weeks ago. According to the prospectus, FPA struck a deal with Sharp earlier this year. Sharp agreed to purchase stock in FPA, and FPA would develop healthcare delivery products with Sharp. In ad-dition, Carlisle C. Lewis III, Sharp's attorney, would become a director when the IPO was completed. Sharp holds 143,000 shares of FPA.
Heart hospitals. Another offering, this one for $26 million, was filed this month by MedCath, a mobile cardiac catheterization company that is starting to build "heart hospitals."
MedCath is building a $23 million, 70-bed heart hospital in McAllen, Texas, a booming city on the U.S.-Mexico border. The McAllen area has been one of the nation's fastest-growing metropolitan statistical areas.
The heart hospital will be owned by a partnership that includes 12 cardiologists and cardiac surgeons. MedCath is the general partner.
According to the prospectus, the company is in discussions to build another heart hospital in the Midwest and "is actively pursuing opportunities to develop additional heart hospitals." It's targeting 14 states that don't require certificates of need to build hospitals, the prospectus said.
MedCath contends that its heart hospitals can offer a lower cost structure and better outcomes to managed-care payers.
The Charlotte, N.C.-based company also recently acquired PhysMed Management Services, which manages a 45-physician multispecialty clinic in Sun City, Ariz. In all, MedCath operates 11 mobile cardiac catheterization labs and five fixed-site cardiac diagnostic clinics.
For the fiscal year ended Sept. 30, the company reported net income of $2 million on revenues of $20.1 million. More than 50% of the company's revenues come from contracts with 42 hospitals to provide mobile catheterization lab services.
MedCath has received venture capital funding from Welsh, Carson, Anderson & Stowe as well as Goldman Sachs, both in New York. The firms will continue to own about 40% of the company after the offering.
Other offerings. Other companies that have registered or completed IPOs in recent weeks:
U.S. Diagnostic Labs, a Valley Stream, N.Y.-based company, last week raised $8.5 million. The company owns two outpatient imaging centers and a laboratory in three states.
EmCare, an emergency-room contract management firm, hopes to raise $25 million. The Dallas-based firm would be the second emergency-room contractor to go public this year. Earlier, InPhyNet, a Fort Lauderdale, Fla.-based firm, raised $48 million.
Orthodontic Centers of America, a Ponte Vedra Beach, Fla.-based firm, plans to raise $24 million. The company claims to be the first to consolidate and manage orthodontic practices on a national basis.
OccuSystems, a Dallas-based occupational healthcare services firm, plans to raise $30 million.
OncorMed recently completed an $8 million offering. The Gaithersburg, Md.-based firm is developing a service that uses interactive software to determine whether an individual is predisposed to cancer. The company claims that its services will be able to detect genetic mutations that could lead to cancer. It intends to market those services to physicians, managed-care organizations and hospitals.