IPO Preview: Premier

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 |  About: Premier, Inc. (PINC)
by: IPOdesktop

Based in Charlotte, NC, Premier (NASDAQ:PINC) scheduled a $691 million IPO with a fully diluted market capitalization of $3.4 billion at a price range mid-point of $24.5, for Thursday September 26, 2013.

Twelve IPOs are scheduled for this week. The full IPO calendar can be found at IPOpremium.

S-1 filed September 16, 2013.

Manager, Joint Managers: JPMorgan; BofA Merrill; Wells Fargo Securities
Co-Managers: Citigroup; Piper Jaffray; Raymond James; William Blair

Summary

PINC is a public vehicle set up to provide (bailout) liquidity for its alliance of Group Purchasing Organizations (GPOs). PINC is a Group Purchasing Organization (GPO) where smaller medical providers group together to try an achieve economies of scale of large, integrated health care providers.

It's a national healthcare alliance, consisting of 2,900 U.S. hospitals, 100,000 alternate sites and 400,000 physicians that plays a critical role in the U.S. healthcare industry.

It seems that ObamaCare is going to squeeze the healthcare industry and most likely will drive some of PINC's alliance members out of the business. The prognosis is not good for PINC's industry.

Valuation

Notice the slight decline in revenue to $764 million from $768 million. But gross profit margin declined to 69% in fiscal '13 from 82% in '11. Net profit margin declined to 33% in fiscal '13 from 46% in '11. See financials below

2013 numbers of pro-forma so they aren't 100% comparable with 2011 and 2012 numbers.

Valuation Ratios

Mrkt

Price /

Price /

Price /

Price /

% offered

annualizing june 6 mos

Cap (MM)

Sls

Erngs

BkVlue

TanBV*

in IPO

Premier

$3,447

4.5

13.8

18.0

2.0

20%

Click to enlarge

Conclusion

There's no growth at PINC and the ObamaCare future doesn't look good for the company, but the P/E is low. The rating is neutral to positive.

To put the conclusions and observations in context, the following is reorganized, edited and summarized from the full S-1 referenced above:

Business

PINC is a Group Purchasing Organization (GPO) where smaller medical providers group together to try an achieve economies of scale of large, integrated health care providers.

PINC is a national healthcare alliance, consisting of 2,900 U.S. hospitals, 100,000 alternate sites and 400,000 physicians, that plays a critical role in the U.S. healthcare industry.

PINC unites hospitals, health systems, physicians and other healthcare providers.

Ownership

PINC is currently owned by 181 U.S. hospitals, health systems and other healthcare organizations and, upon the completion of the reorganization and this offering, all of them will own shares of Class B common stock representing 80% of outstanding common.

The current membership base includes organizations such as Adventist Health, Adventist Health System, Banner Health, Bon Secours Health System, Inc., Catholic Health Partners, Dignity Health, Geisinger Health System, members and affiliates of the Greater New York Hospital Association, Texas Health Resources, Universal Health Services, University Hospitals Health System and the University of Texas MD Anderson Cancer Center.

The PINC alliance was formed in 1996 through the merger of American Healthcare Systems, Premier Health Alliance and SunHealth Alliance, the oldest entity of which was formed in 1969. 72% of member owners have been part of the alliance for more than 10 years, with an average tenure across the entire membership of 14 years as of June 30, 2013.

Competition

The healthcare provider market is extremely fragmented relative to other mature industries. According to the American Hospital Association's AHA Hospital Statistics published in 2013, in 2011 there were approximately 5,000 U.S. hospitals with approximately 800,000 staffed beds in the United States.

Many of these members and potential new members deliver healthcare services primarily on a local or regional basis and will likely face intense competition from larger multi-market competitors over time.

PINC provides access to economies of scale, lower cost of innovation and proprietary data solutions that enable large and small healthcare providers to achieve a level of operating effectiveness which allows them to remain competitive in a consolidating and lower revenue environment.

PINC's scale is derived from 2,900 U.S. hospitals, representing 57% of all U.S. hospitals, that participate in PINC's acute care GPO program in the supply chain services segment or use one or more of PINC's performance services segment's products or services.

The primary competitors to the supply chain services segment are other large Group Purchasing Organizations (GPOs) such as Amerinet Inc., HealthTrust Purchasing Group (a subsidiary of HCA Holdings, Inc.), Managed Health Care Associates, Inc., MedAssets, Inc. and Novation LLC.

In addition, PINC competes against certain healthcare provider-owned GPOs in this segment. PINC's specialty pharmacy competes with Caremark Inc. (owned by CVS Caremark Corporation), Curascript, Inc./Accredo (owned by Express Scripts Holding Co.), Diplomat Specialty Pharmacy and many smaller local specialty pharmacies.

Finally, PINC's direct sourcing activities compete primarily with private label offerings/programs, product manufacturers and distributors, such as Cardinal Health, Inc., McKesson Corporation, Medline Industries, Inc. and Owens & Minor, Inc.

Competitors in the performance services segment range from smaller niche companies to large, well-financed and technologically-sophisticated entities. Primary competitors in this segment include:

(I) information technology providers such as Allscripts Healthcare Solutions, Inc., Caradigm USA LLC, Cerner Corporation, Epic Systems Corporation, McKesson Corporation, Oracle Corporation and Truven Health Analytics Inc., and,

(II) consulting and outsourcing firms such as The Advisory Board Company, Deloitte & Touche LLP, Evolent Health, Inc., Healthagen, LLC (a subsidiary of Aetna, Inc.), Huron Consulting, Inc., Navigant Consulting, Inc. and Optum, Inc. (a subsidiary of UnitedHealth Group, Inc.).

Dividends
No dividends planned.

5% stockholders pre-IPO
Premier Trust, 100% of class B stock, see below
GNYHA Purchasing Alliance, LLC, 14.3% of total shares outstanding, see below

Post-IPO stock outstanding
28.2 million share of class A stock, 112.6 million shares of class B stock: 140.8 million total shares.

Use of proceeds
PINC expects to net $648.3 million from its IPO.

PINC intends to use the proceeds for:

$493.5 million of the net proceeds from this offering to acquire 21,428,571 Class B common units of Premier LP from the member owners,

$27.3 million of the net proceeds to acquire 1,184,882 Class B common units of Premier LP from PHSI, and

$127.6 million (or $224.8 million if the underwriters exercise their overallotment option in full) of the net proceeds to acquire 5,538,505 newly issued Class A common units of Premier LP from Premier LP, in each case for a price per unit equal to the price paid per share of Class A common stock by the underwriters to PINC in connection with this offering.

PINC will contribute all of these units of Premier LP that PINC purchases in connection with the Reorganization to Premier GP and all Class B common units that PINC contributes to Premier GP will be automatically converted into Class A common units.

Disclaimer: This PINC IPO report is based on a reading and analysis of PINC's S-1 filing, which can be found here, and a separate, independent analysis by IPOdesktop.com. There are no unattributed direct quotes in this article.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.