MEDNAX, Inc. (MD - Free Report) has entered into an agreement to divest its MedData business to Frazier Healthcare Partners (“Frazier”), a market-leading provider of private equity capital to healthcare companies. The deal, subject to closing conditions, is expected to close in the fourth quarter of 2019.
MedData, a provider of information technology and billing services to health care companies, currently caters to more than 10000 physicians across a network of above 3000 facilities nationwide.
The company acquired Ohio-based MedData in 2014 to enhance its business line. Over time, certain buyouts, such as that of Duet Health and Cardon Outreach helped the company boost this business.
MEDNAX announced this divestiture in November 2018 so that it can effectively focus on its core business. The company classified MedData as discontinued operations in the first quarter of 2019. Per the terms of the agreement, MEDNAX is entitled to a cash value of around $250 million at closing and an economic consideration of up to $50 million, contingent on both short and long-term performance of MedData. Upon the deal’s closure, MEDNAX will become one of MedData’s largest customers.
The company also expects certain tax benefits from this pact and has inked a long-term services deal with MedData, effective as of the completion of the sell-off.
Notably, Frazier would be able to gain traction from this deal as it would help continue with its commitment of providing enriched patient financial and advocacy services.
This divestment is expected to position MEDNAX in a better way, both financially and strategically. MEDNAX’s mounting debt level has been increasing over the past several years. On average, long-term debt piled up at 45% rate from 2014 to 2018. This deal is likely to help the company lower its elevated debt level.
This transformation is also believed to enhance shareholder value in the company, besides reducing its leverage as well as future capital expenses. This apart, proceeds from the sale will be used for share buybacks and acquisitions.
Apart from this strategic divestiture to streamline its business, Mednax has been aggressively acquiring physician’s practices to ramp up its inorganic growth profile. It seeks to purchase physician’s practices group as well as complementary service businesses. In the first half of 2019, the company closed its buyout of one neonatology physician group practice and two maternal-fetal medicine physician practices. It expects to conclude several buyouts in women and children services in the upcoming quarters.
Shares of this Zacks Rank #3 (Hold) company have plunged 52.1% in a year’s time, wider than its industry’s decline of 9.2%.
Stocks to Consider
Investors interested in the medical sector can take a look at some better-ranked stocks like Molina Healthcare, Inc (MOH - Free Report) , HCA Healthcare, Inc. (HCA - Free Report) and Tenet Healthcare Corporation (THC - Free Report) . You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Molina offers Medicaid-related solutions to meet the health care needs of low-income families and individuals. In the trailing four quarters, the company came up with average beat of 66.9%. It sports a Zacks Rank #1 (Strong Buy).
HCA provides health care services. In the last four quarters, the company delivered average beat of 11.17%. It holds a Zacks Rank #2 (Buy).
Tenet operates as a diversified healthcare services company and carries a Zacks Rank of 2. The company came up with average four-quarter positive surprise of an astronomical 95.85%.
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