AmSurg, Envision Healthcare Set To Merge By 2016-End

Physician and ambulatory services provider AmSurg Corp. (NASDAQ:AMSG) recently agreed to merge in an all-stock deal with Envision Healthcare Holdings, Inc. (NYSE:EVHC) – an outsourced medical services provider. Notably, the merger has been sealed at a fixed exchange ratio of 0.334 AmSurg shares for each Envision share.

The transaction is expected to close by the end of 2016, subject to regulatory approvals, sanction from the companies’ shareholders as well as customary closing conditions. However, management at both the organizations has approved the deal.

Outcome of the Merger

This colossal tax-free merger of two healthcare industry biggies is expected to create one of the largest providers of physician services in specialties including emergency, hospitalist, anesthesia, radiology and pediatric; in the U.S. Also, the combined enterprise will have an expanded customer base with respect to ambulatory surgery, post-acute care and medical transportation solutions.

Together, revenues from these companies exceeded $8.5 billion, with adjusted EBITDA of more than $1.1 billion for the 12 months as of Mar 31, 2016.

On completion of the deal, the combined enterprise, to be named as Envision Healthcare Corporation, will bear a value of $15 billion and market cap of $10 billion. The new company will be co-headquartered in Nashville, Tennessee and Greenwood Village, Colorado; with its common stock expected to trade on the New York Stock Exchange under the ticker symbol, EVHC.

Further, Envision shareholders will own 53% of the combined entity while AmSurg shareholders will have 47%. Per management, the new company will have 14 board of directors, with Envision and AmSurg directors sharing equal number of seats, including the top most authority from both the organizations.

Benefits of the Deal

In terms of financial advantage, this tie-up is expected to boost the new company’s adjusted earnings per share in 2017 and by double-digits in 2018. Management also expects to gain synergies worth $100 million within three years of closing the deal, through cost savings and increased revenues.

With respect to operational know-how, this deal is expected to generate a healthcare giant with differentiated service offerings by leveraging the cross selling opportunities of both the companies’ products; thereby expanding the combined corporation’s global realm manifold.

Our Take

The market for outsourced physician services is highly fragmented and predominantly served by small provider groups. Thus, the combined company will enjoy significant operational as well as financial advantage over its peers.

This will be on account of the large nationwide customer network of the new company as well as the leadership that both Envision and AmSurg enjoy in each of its sub-specialties of healthcare service offerings.

Zacks Rank & Other Key Picks

Envision currently holds a Zacks Rank #2 (Buy) while AmSurg carries a Zacks Rank #3 (Hold). Other favorably ranked medical stocks are Baxter International Inc. (NYSE:BAX) , and LeMaitre Vascular, Inc. (NASDAQ:LMAT) . While Baxter holds a Zacks Rank #1 (Strong Buy), LeMaitre carries a Zacks Rank #2.