Mednax: Slow Bleed Continues, Will Private Equity Step In?

12/7/17

Mednax (NYSE:MD) equity has been volatile in recent months, particularly given speculation that the company is shopping itself to several private equity firms, including Carlyle Group. This has thrown a wrench in most of the gains I’ve made since going short this June, based on a continued fundamental breakdown in earnings quality. While this would be a massive deal, somewhere in the neighborhood of $8,000mm, given historical premiums, it would not be unheard of, and the hospital staffing industry is in fact seeing some interest from buyers: see Blackstone’s acquisition of TeamHealth last year. Still, there are a glut of sellers out there right now. DaVita Inc. (DVA) is reportedly looking to sell its physician network business, and that follows Envision Healthcare (EVHC) announcing plans to sell just a month ago. I think it is incredibly telling that everyone is scrambling to get away from this business, which is fundamentally tied to high degrees of leverage via small practice acquisitions. Speculation and rumors aren’t quite enough to scare me away, and I remain on the short side of this trade.

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