PhyCor last week agreed to allow New York investment firm E.M. Warburg, Pincus & Co. to invest up to $200 million in its operations.
The firm is already PhyCor's largest shareholder, owning a 10% stake that was worth approximately $57 million at mid-week last week.
The deal consists of $127.5 million in notes that are convertible to PhyCor stock and an option to buy up to $72.5 million of company stock.
Depending on the price and number of shares it buys, Warburg, Pincus could double its interest in the Nashville-based company, which operates 52 medical groups with about 3,360 physicians and independent practice associations in 36 markets with about 24,000 physicians. It also owns a healthcare decision-support company. The deal is expected to close by the end of September.
Warburg, Pincus also will gain two seats on PhyCor's board, which will increase to 13 members from 11.
PhyCor had considered taking itself private, as another physician practice management company, Physicians' Specialty Corp., did last week, but company officials said that option had been taken off the table for now (See story, p. 34).
PhyCor Chief Financial Officer John Crawford said going private "would have required a higher level of leverage. That always puts a company . . . at higher risk."
PhyCor will use the proceeds to repurchase some of its stock and pay bank debt.
Besides bolstering its balance sheet, the capital infusion "sends a signal that the opportunities the company has are real, and we're here for the long term," said PhyCor Chief Executive Officer Joseph Hutts. He called Warburg, Pincus a "savvy investor that has looked us over in great detail."
PhyCor stock has fallen from the mid-$20 range 18 months ago to about $6 in recent weeks.
Hutts called it a "very, very tough 18 months," citing lack of investor confidence in the industry following the disintegration of PhyCor's major competitors and missteps that caused PhyCor to take charges against earnings.