Moody's: Envision could sell AmSurg for $3B-$3.5B — Will they?

A new Moody's report outlines Envision's strategy after the KKR leveraged buyout, which details the uncertainty around AmSurg, the company's ambulatory division.

The report's lead analyst, Jonathan Kanarek, examined Envision as a whole, expecting the company to take a more "targeted approach" to acquisitions in the future, spending around $200 million per year. This is a decrease from previous years; from 2013 to 2017, Envision spent around $1.2 billion on acquisitions annually.

Here are five quick thoughts on where AmSurg may be headed:

1. Despite the leveraged buyout, Mr. Kanarek estimated in the report that Envision could sell AmSurg for around $3 billion to $3.5 billion purchase price, based on the assumption that the company owns approximately 51 percent of each ASC in its portfolio. The report estimated AmSurg's sale could reach multiples of 12x to 14x EBITDA and generate proceeds net of minority interest of around $1.5 billion to $1.8 billion.

"KKR's proclivity for taking debt-financed dividends suggests by extension that Envision might sell the ASC business if it could dividend a portion of the sale proceeds," according to Mr. Kanarek.

2. Potential buyers include Nashville, Tenn.-based HCA Healthcare, Dallas-based Tenet and UnitedHealth's OptumHealth, based in Eden Prairie, Minn., all of which already have significant ASC platforms.

3. The report outlined what may happen with the proceeds if Envision decided to sell AmSurg. "If Envision was to sell the ASC business, we believe there would be significant cash leakage because the company does not need to use all proceeds to pay down debt or reinvest in the business," according to Mr. Karanek in the report.

4. If Envision decides to keep AmSurg, it could use the ASCs to "attract new business opportunities," especially for the company's physician staffing business.

"We expect ASCs to continue [to] create savings for the U.S. health system, particularly because technical advancements allow for a growing number of procedures to be performed in lower-cost, outpatient settings," according to Mr. Karanek. "Further, by retaining its ASCs, Envision will have a valuable way to attract partnerships with large hospital systems. About 10 percent of the company's ASCs are co-owned by health/hospital systems. Given how attractively other healthcare constituents view ASCs, hospitals may be interested in an ownership stake in some of these ASCs in return for forging a relationship with Envision to provide physician staffing services."

5. AmSurg accounts for around 15 percent of Envision's revenue, and keeping the ASC business would give the company an advantage over the competition. "While we would view the reduction in scale and diversity in the event of an ASC sale as credit negative, Envision would still remain the most diversified physician staffing company," Mr. Karanek said in the report.

6. Envision is on track to reach its $50 million revenue goal by the end of 2019 based on synergies from the AmSurg merger, according to the report.

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