IPC Healthcare Inc. shareholders had plenty to celebrate last Tuesday when the North Hollywood firm announced it would be bought by Team Health Holdings Inc. for $1.6 billion, or $80.25 a share, which was 37 percent over the stock price the previous day.
News of the deal sent IPC shares soaring 54 percent for the week to close at $79.55, making it the biggest winner on the LABJ Stock Index. (See page 28.)
It might seem like Team Health paid a striking premium for IPC, which provides doctors to hospitals and nursing homes. But the deal doesn’t seem so costly when you consider the potential revenue at stake, said Jeffries analyst Brian Tanquilut.
“On the surface, people are saying it looks expensive,” said Tanquilut, who’s based in Nashville, Tenn. But, he noted, IPC is participating in a new Medicare bundled payments program and could make as much as $32 million in bonus payments next year if it can save the government money.
“If you factor that in, the likely earnings realized from that program, it’s not as expensive,” he explained.
Team Health, based in Knoxville, Tenn., supplies doctors to emergency rooms, a common practice in the United States where more than half of hospitals with ERs seek outside physicians to staff their emergency departments. IPC’s doctors are hospitalists who serve as the point person for care of patients in hospitals and post-acute care settings.
“From a strategic perspective, the combination makes sense and is perhaps the least surprising deal of recent memory in the sector,” Wells Fargo Securities analyst Gary Lieberman wrote in a note.
Team Health noted in the deal announcement that there’s a growing opportunity for providers who can effectively manage care both inside a hospital setting and beyond, especially as payers move to value-based payments tied to quality of care.
Among the beneficiaries of the big premium are a handful of institutional investors that own about 46 percent of IPC’s shares. Company Chairman and Chief Executive Adam D. Singer and President and Chief Operating Officer R. Jeffrey Taylor hold 400,000 and 425,000 shares, respectively.
