American Physician Partners of Dallas, a company with no current operations, plans $237.6 million in acquisitions that would catapult it to the top of the nation's radiology practice management companies.
The startup company intends to finance its growth with a $75 million public offering of 5 million shares at a target price of $15 per share. The final pricing date of the IPO, filed June 27, isn't set.
The target price may seem ambitious, given that if investors pay $15 per share for American Physician stock, the company's book value--assets minus liabilities--will be only $2.08 per share. Plus, the company is launching its IPO at a time in which many other PPMs' stock prices are flagging.
But American Physician Partners will have two advantages. Behind it are two experienced healthcare investors: John Pappajohn and Richard Rainwater. It also will be able to make use of advantageous accounting rules that have been phased out for other companies. The rules give favorable tax treatment to companies combining in a single IPO, a transaction known in Wall Street parlance as a "poof IPO."
Following the IPO, American Physician Partners will buy seven radiology practices for $237.6 million, about $184 million of which will be in newly issued company stock, according to the company's IPO filing with the Securities and Exchange Commission. In 1996, the practices had combined revenues of $144 million and net incomes of $13.2 million, according to the SEC filing.
"It's a large transaction by any means," said Timothy Schier, a vice president in the Houston office of Cain Brothers, which has provided financial advice to one of American Physician Partners' intended acquisitions, M&S X-Ray Practices in San Antonio.
Once the transactions are completed, American Physician Partners would manage 218 radiologists, 42 hospital radiology departments and 65 imaging centers. That would have been worth $89.6 million in fees to the company in 1996, according to the SEC filing.
Only MedPartners subsidiary TeamHealth of Knoxville, Tenn., manages more radiologists-250 in 60 hospitals and imaging centers. TeamHealth, however, is not purely a radiology PPM.
American Physician Partners executives declined to comment for this story, citing SEC regulations barring discussion of an IPO in registration. But SEC documents reveal a great deal about how the company plans to come out of nowhere to engineer a leap to the top of the radiology practice management field.
The company's major investors are Des Moines venture capitalist Pappajohn and Derace Schaffer, M.D., of Rochester, N.Y. Together, the two men sit on the boards of three publicly traded healthcare companies.
Pappajohn has founded eight public healthcare companies, mostly biotechnology or contract management. He also has funded entrepreneurial schools at four Iowa colleges.
Schaffer founded Ide Group, one of American Physician's intended acquisitions, and he runs a venture capital firm, Lan Group.
The men invested $125,000 each in the company in April 1996, receiving more than 1 million shares. Their stakes would be worth about $15 million each if the IPO reaches its target price. That doesn't include stock options and equity received through the conversion of promissory notes.
Meanwhile, a private equity fund controlled by Fort Worth, Texas-based Rainwater bought $2 million of the $3.5 million in notes offered by American Physician Partners in October 1996. The notes pay 6% and can convert to 250,000 shares of stock, a minor holding in the company but enough to almost double Rainwater's investment to $3.75 million.
American Physician Partners is raising money elsewhere, too. It has a commitment from GE Capital for a $100 million credit facility, concurrent with the pricing of the IPO, according to SEC documents. Rainwater got commitments for early bank loans to start up what now is Columbia/HCA Healthcare Corp., but American Physician Partners said Rainwater was not instrumental in winning the GE Capital facility.
American Physician Partners has picked a leader with previous experience bringing a poof IPO to market. President and chief executive officer Gregory Solomon previously led Physicians Resource Group of Houston, an ophthalmology PPM. Physicians Resource Group went public in June 1995, needing just $13 million to acquire the assets of 100 physicians.
American Physician Partners is among the last poof IPOs the market will see. The company can account for its purchases as a pooling of interests, a manuever that the SEC expunged on July 31, 1996. Now, a company wanting to bring a poof IPO to market would have to account for its acquisitions as purchases, a far costlier route. American Physician Partners beat the deadline by incorporating in April 1996.
Another company that beat the SEC deadline and can benefit from the previous rules is MD Alliance, an Atlanta-based multispecialty group which has not yet filed an IPO, according to Wallingford Capital, a Chadds Ford, Pa.-based mergers-and-acquisitions group.