MEDNAX, Inc. (MD - Free Report) recently announced that it will divest its MEDNAX Radiology Solutions to Radiology Partners for $885 million. Subject to certain closing conditions, the transaction is estimated to close in the fourth quarter of 2020.
After the completion of the deal, the company will report the operating results of MEDNAX Radiology Solutions as discontinued operations.
Rationale Behind the Deal
The company has been looking to divest its MEDNAX Radiology Solutions for deepening its focus on the core pediatrics and obstetrics business lines. The division has been witnessing poor performances ever since the COVID-19 outbreak. Radiology Partners is a leading physician-owned, on-site radiology practice, which partners with around 1,600 radiologists and caters to nearly 1,300 hospitals, clinics and imaging centers across 26 states. This makes it a perfect fit for the move. Management also believes that this strategic action is best for MEDNAX’s stakeholders
MEDNAX entered into the radiology business following the $500-milion acquisition of vRad in 2015 but this deal will help it reposition itself as a dedicated pediatrics and obstetrics business operator.
The divestiture will also boost its efficiency and pave a path for robust growth.
With the deal’s conclusion, the new company will be operated under the name of Radiology Partners and will consist of more than 2,400 radiology physicians who provide services in all 50 US states and the District of Columbia.
The increased abilities with local practice autonomy and physician experience are expected to lead to quality health care, cost reduction and better clinical value. The sell-off is also projected to transform radiology entirely. The new company is expected to result in top-class provider of comprehensive radiology and teleradiology services in the United States.
Financial Terms of the Deal
The company doesn’t expect any material tax impact on the sale proceeds. As of Sep 1, 2020, it had a net debt of $1.49 billion compared to net debt of $1.62 billion as of Jun 30, 2020.
The proceeds received from this deal are also expected to add to its balance sheet position.
Other Initiatives Taken by the Company
In order to streamline its business and cut down on its debt burden, the company has been divesting its businesses.
Last year, the company divested its MedData business to Frazier Healthcare Partners, which helped it concentrate on its core business.
Following its MedData transaction, the company is now an organization devoted to physician services and patient care. Moreover, it sold American Anesthesiology, which is expected to mitigate cash losses induced by the coronavirus outbreak as well as better its risk profile. In fact, the company will eventually change its name to Pediatrix Medical Group, Inc. to focus on pediatric care.
MEDNAX has been taking steps to improve its solvency level since 2018.
All these initiatives bode well for the company.
Zacks Rank and Price Performance
Shares of this currently Zacks Rank #3 (Hold) company have gained 55.6% in the past six months, outperforming its industry's growth of 30.3%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Notably, other companies in the same space, such as Tenet Healthcare Corporation (THC - Free Report) , Universal Health Services, Inc. (UHS - Free Report) and HCA Healthcare Inc. (HCA - Free Report) have rallied 65.1%, 13% and 32.7%, respectively, in the same time frame.
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