AmSurg Lowers NSC Offer Price

The leading operator of practice-based ambulatory surgery centers (ASCs), AmSurg Corporation (AMSG - Analyst Report) recently revised its bid offer for acquiring Dallas-based ASC operator, National Surgical Care (NSC). As per the updated terms of the deal, Amsurg lowered the offer price to $135 million in cash from the original offer price of $173.5 million, as announced in April 2011.

AmSurg also agreed to pay an additional $7.5 million if NSC’s earnings exceed the specified targets for fiscal 2012. The transaction is expected to close by the beginning of September 2011.

AmSurg expects this transaction to be accretive to its 2011 results (excluding transaction cost of approximately 12 cents per share in the second half of 2011) and 2012 earnings by 2-3 cents per share and 9-13 cents per share, respectively.

The acquisition includes 17 ASCs of NSC, out of which 15 are multi-specialty centers while the remaining 2 specialize in gastroenterology procedures. However, within 90 days of closing of the deal, 1 multi-specialty ASC will be up for sale to the center’s physicians under a change of control provision in their existing partnership agreement. Excluding this center, other 16 centers generated revenues of approximately $108 million in the trailing 12 months ended June 30, 2011.

AmSurg exited the second quarter of 2011 with $32.9 million ($34.1 million at the end of 2010) in cash and cash equivalents and $252 million available under its revolving credit facility. Net cash flows from operating activities were $61.7 million compared with $52.6 million at the end of second quarter 2010.

The acquisition of NSC is significant as economic uncertainty remains an overhang for AmSurg. For fiscal 2011, the company expects flat-to-declining same-center procedures. Moreover, significant margin pressure is expected given the host of initiatives on the company’s part to revive growth.

The company expects to open 18 to 20 new centers in 2011 (excluding the NSC transaction). During the second quarter of 2011, AmSurg raised its same-center revenue guidance for 2011 to 0–1% from the previous range of negative 1–0%.

Presently we remain Neutral on AmSurg.

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