Surgically precise Sheridan buy to boost Amsurg profile

NASHVILLE -- AmSurg Corp., which operates a chain of same-day surgery centers, is spending $2.35 billion to purchase Sheridan Healthcare, a Florida company that provides physician services – including radiology, anesthesia and emergency medicine – to hospitals and other health care facilities.

According to AmSurg, the deal, which should close in the third quarter, will allow the company to tap into a $70 billion market.

The acquisition is happening against the backdrop of health care reform, which is pushing more care into outpatient surgery centers, such as the ones that AmSurg operates. The trend is also causing cost-conscious hospitals to outsource physician services, which is Sheridan's specialty.

"We can do both now," said AmSurg CEO Chris Holden. "There's really no other competitor that has that complement of services to offer."

The question is whether the two company's strategies will prove to be truly complementary.

At its core, AmSurg has traditionally partnered with physicians and competed with hospitals for business, according to Whit Mayo, an analyst at Robert W. Baird.

Sheridan, on the other hand, has provided outsourced physician services to hospital customers. Mayo sees potential difficulties merging those two business models.

Leadership at AmSurg, however, has said the health care industry is shifting to allow for new kinds of relationships between different companies.

Besides the culture combination hurdle, deals of this size generally prove difficult, Mayo said. "A lot of large acquisitions rarely meet up with investors' optimistic expectations."

Investors have had reason to be pleased with AmSurg's stock performance before the purchase. Over the past five years, the price of AmSurg's stock has doubled from just under $20 per-share to more than $40 now.

The plus side of purchasing Sheridan, of course, is that it will provide AmSurg a new opportunity to grow. "We have a very constant and active acquisition pipeline," said Sheridan president Robert Coward.

Sheridan also has a good, physician-friendly reputation in the industry, Mayo said. Another encouraging sign – Hellman & Friedman, the private equity company that is selling Sheridan, will own equity in AmSurg. "It's always nice to see that because everybody has skin in the game going forward," Mayo said.

Health care companies like AmSurg need to plan several years ahead about the best way to diversify and grow their businesses, Mayo said: "Since the day that Chris Holden joined AmSurg, he's really been thinking about the big picture strategy -- how do we need to organize, and what are businesses that could be part of AmSurg that are complimentary to what we're doing?"

This latest, massive purchase is good news for the entire physician services sector, according to Brian Tanquilut, a health care analyst at Jefferies "… as it validates the group's attractiveness at a time when hospitals are increasingly looking to outsource specialties such as anesthesiology, ER, hospitalist and radiology."

Sure, that growth in the sector means more competition, but this acquisition will allow AmSurg to stand out, according to Holden, who says this unique partnership will help the company outshine its peers.