Envision Healthcare to Go Private With Acquisition by KKR

Envision Healthcare Corporation EVHC, a physician staffing company, has entered into an agreement to be acquired by the global investment firm KKR.  

 

Financial Terms of the Deal

 

Envision Healthcare will be acquired in an all-cash transaction worth nearly $9.9 billion, including the assumption or repayment of debt.

 

Each share of Envision Healthcare will fetch $46.00 per share in cash, which reflects nearly 32% premium to Envision Healthcare’s volume-weighted average share price from Nov 1, 2017, when the company disclosed that it was reviewing strategic alternatives to enhance shareholders’ value. 

 

Earlier in the year, Envision Healthcare sold its American Medical Response, the provider of ambulance services in the United States to KKR for net proceeds of $2.1 billion.

 

The deal, subject to regulatory approvals and closing conditions, should see light by the fourth quarter of 2018. 

 

Strategic Alternatives 

 

The deal does not come to us as a surprise since the company had already hinted at this direction when last year it disclosed that it has reviewed all the strategic alternatives. The different options included – capital structure alternatives, potential acquisitions, portfolio optimization, a potential sale of the whole company and continued operation as a standalone business.

 

The sale to KKR is expected to generate utmost shareholder’s gain according to the company’s management, which after thorough scanning of a number of potential buyers found KKR the best fit.

 

Moreover, the sale of the entire company was the best option among others, considering business and competitive landscape, the company’s opportunities and challenges and strategic and financial alternatives available.

 

Envision Healthcare Corp. was formed in December 2016 as a result of a merger of Envision Healthcare Holdings Inc. with AmSurg Corp. With its sale to KKR, the company will go private.Recent Troubles

 

In recent times, Envision Healthcare was mired in lawsuits over allegations over “balance-billing” and outrageous billing practices which increased costs for hospitals and consumers.  The company also lost its contract with UnitedHealth Group Inc. UNH, due to the egregious billing practices of the former to UnitedHealth’s customers. 

 

Envision Healthcare was already struggling with weak patient volumes and given its tarnished image for overbilling, it was not easy to expand its in-network relationships with private insurance carriers. Moreover, the sale of its ambulatory services business caused a loss of business diversity and decline in business scale, which would limit its top-line growth.

 

Given these headwinds, the company going into the hands of a private player is probably the best that Envision shareholders could wish for. 

 

In year's time the stock has lost 23% compared with the industry's growth of 4.3%.

 

 

Envision Healthcare carries a Zacks Rank #2 (Buy). Other stocks worth considering in the healthcare space are INC Research Holdings, Inc. SYNH and 

 

OncoCyte Corporation OCX. Each of these stocks carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 (Strong Buy)  Rank stocks here.

 

INC Research topped estimates in two of the last four reported quarters, with an average positive surprise of 4.32%.

 

OncoCyte surpassed estimates in two of the trailing four reported quarters, with an average positive surprise of 1.76%.

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