In a month marked by volatile healthcare stock prices, hospital chain Iasis Healthcare Corp. has filed to go public.
Franklin, Tenn.-based Iasis is attempting to leap into the market at a time when hospitals are enjoying favorable reimbursement rates and increased earnings, after a year of rising stock prices throughout the industry. Most of the more established, publicly traded hospital chains have fared well in recent months, but Iasis, a 15-hospital chain with a short history and a new management team, remains an untested commodity.
Iasis filed notice with the Securities and Exchange Commission last week that it wants to sell up to $201.25 million of common stock in the initial public offering. It is the first hospital company to attempt an IPO since Community Health Systems, Brentwood, Tenn., re-entered the public market last June after being taken private in 1996. Merrill Lynch & Co., the lead underwriter of the Community deal, is also leading the Iasis offering. Between its IPO and the end of last year, Community Health Systems' stock price soared to a 52-week high of $37.20 per share from its initial price of $13 per share, although it has since dropped into the mid-20s. Community's hospitals are primarily rural, and Iasis' are medium-sized facilities in urban and suburban markets in Phoenix; Salt Lake City; Tampa and St. Petersburg, Fla.; and several markets in Texas.
John Crawford, Iasis' chief financial officer and executive vice president, would not comment on the IPO filing, citing a "quiet period" the SEC requires before an offering, preventing anyone who is involved from discussing company prospects. But analysts expect the company to shop itself around to potential investors for up to three months before pricing an offering and entering the market.
Robert Mains, a healthcare research analyst at Advest, a brokerage firm in Hartford, Conn., said the environment for healthcare companies is more favorable now than it was in 1998 when several other hospital chains, such as Province Healthcare Co. and the bankrupt New American Healthcare Corp., went public.
However, hospital stocks have been buffeted this past month by the changing winds of investor preferences. Hospital stocks have traded up when technology stocks were being hit but suffered when investors moved money back into the technology sector, dropping 21% in the first three weeks of January, according to Mains.
These short-term swings, normally not a problem for companies with strong business strategies, can become problematic for a company trying to raise as much equity as possible through the timing of an offering.
"The volatility makes it tricky," Mains said. "Essentially you have to cross your fingers to some degree as to how the market views the equities at any given time."
Iasis was originally founded in 1998 but didn't purchase its 15 hospitals-10 of them from Tenet Healthcare Corp. and five from Paracelsus Healthcare Corp.-until the fall of 1999 for about $760 million. Joseph Littlejohn & Levy, a private equity firm that owns a majority of Iasis' stock and holds a majority of seats on the company's board of directors, arranged and financed the deal. The company reshuffled its management last November, moving then-company-Chairman David White into the chief executive officer's seat to replace Wayne Gower, who continued as president and became chief operating officer (Nov. 27, 2000, p. 16).
Iasis will have to convince potential investors not only that its management team is capable of handling a publicly traded company, but also that its portfolio of hospitals holds promise. In its filing with the SEC, the company noted among its list of risks to investors that Rocky Mountain Medical Center, one of its Salt Lake City hospitals, has not met census and revenue goals, losing $9 million on operations during the fiscal year ended Sept. 30, 2000. Iasis filed a lawsuit against a competing hospital owned by HCA-The Healthcare Co. alleging anti-competitive practices. Last October, a county judge denied Iasis' request for a preliminary injunction in that case, which is still pending, although no trial date has been set.
"If we are unsuccessful in growing revenue at Rocky Mountain Medical Center and reducing its operating losses, we may be forced to significantly alter our plans and strategies with respect to this hospital," Iasis said in its IPO filing.