Acquisition by EMS's EmCare

Emergency Services Corporation’s (EMS) EmCare segment has decided to acquire Milford Anesthesia Associates, an anesthesia provider based in Milford. With approximately 100 clinicians the anesthesia company in-sources its services to 9 hospitals and 18 ambulatory surgical centers. The transaction, to be closed in the next 30 days, is expected to contribute $40 million of net revenue annually.

Emergency Medical has entrenched its leading position based on organic and inorganic growth. The company exited the quarter with $345.7 million of cash and cash equivalents, up from $332.9 million at the end of December 2009. With a strong cash balance, the company is well equipped to target further acquisitions, which should boost its top line. Going by Emergency Medical’s statement during the third quarter call, an acquisition was expected in the area of anesthesia.

Emergency Medical’s EmCare is a leading provider of outsourced emergency department staffing and related management services in the US based on the number of contracts with hospitals and affiliated physician groups. This segment commands an 8% share of the emergency department services market and 12% of the outsourced emergency department services market.

EmCare primarily provides emergency department staffing and related management services to health care facilities, from the recruitment and subsequent subcontracting of physicians and other healthcare professionals to client hospitals. During the third quarter, this segment generated revenues of $385.0 million, up 18% from the year-ago period.

Increased focus on cost containment, especially for the emergency departments in the hospital sector, coupled with complex regulatory/compliance requirement and a shortage of emergency qualified physicians should continue to drive outsourcing trends in favor of well-established private providers of emergency department related services.

EmCare has developed proprietary physician recruitment software that has enhanced recruitment efficiency and improved physician retention rate. Based on these factors, we believe EmCare should be able to consolidate its share in the $13 billion emergency department market.

We are currently Neutral on the stock.

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