Nothing's sleepy about M&A in the anesthesia sector - The Deal Pipeline (SAMPLE CONTENT: NEED AN ID?)
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Nothing's sleepy about M&A in the anesthesia sector

by Michael D. Brown  |  Published December 27, 2013 at 11:35 AM

As private equity-backed Continental Anesthesia Ltd. attempts to expand its roster of physicians to 150 in the coming months, it finds itself in a sector where larger medical services consolidators, such as MedNax Corp., are on the prowl for buyout candidates.

"The anesthesia space is consolidating rapidly and I think that any company with a strong relationship with payers and hospitals is a real candidate for MedNax and others in the space," said Dougherty & Co. LLC analyst, Brooks O'Neil, who covers the healthcare space.

Continental, whose official corporate name is TBG Anesthesia Holdings Inc., was purchased by New York PE firm Beekman Group LLC in 2009 for undisclosed terms. The company has since grown into a regional powerhouse in the Chicago area, with 100 physicians serving 20 hospitals and ambulatory surgery centers in the Midwest.

Continental disclosed in an Oct. 11 press release that is was looking to expand its practice to 150 physicians within the next few months, but didn't say whether that growth would be organic or through M&A. O'Neil explains that the anesthesia space has been rife with deal activity of late as investors try to take advantage of the "graying of America."

Both Mednax and rival healthcare services company Team Health Holdings Corp. have been actively acquiring smaller practices to gain market share and geographic reach.

Mednax and others like it "saw the opportunity to bring specific expertise to a highly specific group of customers," O'Neil explained. "In the anesthesia space in particular, you need anesthesia for surgeries and with the overall population aging, it's is a smart move to get into this space."

Mednax alone has completed several acquisitions of anesthesia practices around the country this year, with its most recent being the Sept. 11 deal for Northern Westchester Anesthesia Services PC, a physician group practice based in Mount Kisco, N.Y.

Terms of the deal were not disclosed, but Fort Lauderdale, Fla.-based Mednax said it paid cash for the target, which employs 16 anesthesiologists and nine anesthetists.

Other Mednax deals include the May 1 acquisition of Gwinnett Anesthesia Service PC of Lawrenceville, Ga., the May 30 purchase of Anesthesia Specialists of Houston LLP and the Jan. 1 deal for South Oakland Anesthesia Associates. Terms weren't disclosed for any of them.

Knoxville, Tenn.-based TeamHealth, meanwhile, has also been rolling up the sector, inking its most recent acquisition on Nov. 12 by buying Wolverine Anesthesia Consultants Inc. for undisclosed terms.

Other strategic buyers are out there, too, such as Envision Healthcare, a former portfolio company of Clayton, Dubilier & Rice LLC that was spun off in 2013.

PE firms continue to hover over the sector, too. "There are at least four or five private equity firms that have [asked] me about taking advantage of the [anesthesia] space," said Jeff Swearingen, co-founder of Edgemont Capital Partners LP, a New York investment bank focused on healthcare companies that worked with South Oakland on its sale to Mednax and Wolverine on its sale to Team Health.

As Swearingen noted, there's a dichotomy among buyers. There are Team Health and Mednax, "which have multiple physician specialties" and "are focusing on -- for lack of a better term -- becoming one-stop shops for healthcare services," he explained. But there are also "those PE-backed companies that are looking to consolidate and seem to focus just on the anesthesia space," he added.

Swearingen declined to say whether he believed Oak Brook, Ill.-based Continental fit in either category.

Certainly, other 100-physician anesthesia practices are falling into the arms of PE buyers. TPG Capital LP on Oct. 10 completed a platform acquisition of Arlington, Texas-based NorthStar Anesthesia, a 100-physician practice, for undisclosed terms.

Mednax has gone after even-larger prey, such as Anesthesia Specialists of Houston, with its 650 physicians and 950 anesthetists under management.

"I think any practice is a candidate for a roll up," said Amanda Jester, an M&A attorney at Nashville law firm Waller Lansden Dortch & Davis LLP who also advised Orlando, Fla.-based Wolverine on its sale to Team Health. "In terms of how many physicians are in the practice ... I've done deals with practices with anywhere from 2 to 150 physicians."

She said a practice's vulnerability to a buyout "just really depends on a case-by-case basis. Some of it is geographic and [depends on] where their competitors [are] in that market."

Jester noted that scale and size are important, but both factors pale in comparison to the importance of a practice's relationship with the hospitals and other healthcare centers it serves.

Continental, with relationships with more than 20 hospitals, didn't respond to calls. Beekman officials declined comment. One interesting thing about the PE firm: It has yet to make a bolt-on acquisition for Continental since buying it four years ago.

Tags: Anesthesia Specialists of Houston | Anesthesia Specialists of Houston LLP | Beekman Group LLC | Clayton Dubilier & Rice LLC | Continental Anesthesia Ltd. | Envision Healthcare | Gwinnett Anesthesia Service PC | MedNax Corp. | Northern Westchester Anesthesia Services PC | NorthStar Anesthesia | South Oakland Anesthesia Associates | TBG Anesthesia Holdings Inc. | Team Health Holdings Corp. | TPG Capital LP | Wolverine Anesthesia Consultants Inc.

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