IPO Preview: Surgical Care Affiliates

| About: Surgical Care (SCAI)

Based in Deerfield, IL, Surgical Care Affliliates (NASDAQ:SCAI) scheduled a $220 million IPO with a market capitalization of $860 million at price range midpoint of $22.50 for Wednesday, October 30, 2013.

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

S-1 was filed on October 15, 2013.

Manager, Joint Managers: J.P. Morgan, Citigroup

Co-Managers: BofA Merrill Lynch, Barclays, Goldman, Sachs, Morgan Stanley, BMO Capital Markets, SunTrust Robinson Humphrey, TPG Capital


SCAI operates one of the largest networks of outpatient surgery facilities in the United States.

SCAI was a carve-out from HealthSouth Corp ($3 billion market cap) in 2007, mostly funded by private equity firm TPG.

In the road show, management said, "We get paid 42% less than the comparable price inside an hospital," which is important to HMOs and government funders. They also said SCAI's Net Promoter Score has gone form -55 to +70 in the last five years. Airlines average +20%. About Net Promoter.


SCAI's price-to-tangible book value isn't as 'bad' as HCA's and AMSG, but SCAI shows losses on a GAAP basis.


  • At the price range mid-point of $22.50 there will be an immediate dilution of $31.50 per share, resulting in a negative tangible book value of $-9.06 (page 61).
  • IPO proceeds to repay debt (a warning sign in combination with all the rest)
  • Shareholders selling 19% of the IPO (a warning sign in combination with all the rest)
  • On September 16, 2013 $75 million cash dividends were paid (a poke in the eye to potential IPO investors in combination with the rest)
  • The company shows losses with only moderate top line organic revenue growth of 8.5%
  • The future depends on doing future acquisition/joint ventures (always problematic)
  • No organization chart: Organization charts are very common for companies whose objective is to be transparent with investors.
  • Expects Q4 '13 results to be lower than Q4 '12, based on non-recurring charges.

Note: "Adjusted EBITDA-NCI and Adjusted net income are non-GAAP net income substitutes for and are not comparable to our GAAP financial measures and should not be considered comparable to our GAAP net income" on page 110.


The 'net promoter score' (see summary above) is very good but the accounting presentation & GAAP losses vs 'adjusted net income' are a little confusing. The competitors mostly report GAAP.

The rating on SCAI is a buy.

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


SCAI is a leading national provider of solutions to physicians, health systems and payors to optimize surgical care.

SCAI operates one of the largest networks of outpatient surgery facilities in the United States, which as of June 30, 2013, was comprised of 167 ambulatory surgery centers (ASCS), five surgical hospitals and one sleep center with 11 locations.

As of June 30, 2013, SCAI owned and operated facilities in partnership with 42 leading health systems and about 2,000 physician partners

As of June 30, 2013, SCAI operated in 34 states and had an interest in and/or operated 167 freestanding ASCs, five surgical hospitals and one sleep center with 11 locations.

Of these 173 facilities, SCAI consolidated the operations of 85 affiliated facilities, had 60 nonconsolidated affiliated facilities and held no ownership in 28 affiliated facilities that contract with to provide management services only. In addition, at June 30, 2013, SCAI provided perioperative consulting services to 14 facilities, which are not included in the facility count.

Net promoter score

SCAI's Net Promoter Score has gone form -55 to +70 in the last five years. About Net Promoter.


SCAI believes it is the third largest ASC (ambulatory surgery centers) operator in the United States, based on the number of ASCs and surgical hospitals operated.

United Surgical Partners, Inc., AmSurg Corp., HCA Healthcare Corporation, Symbion, Inc. and Surgery Center Partners are the largest national ASC operators.

5% stockholders

TPG Funds, 89%

MTS, 9%

Use of proceeds

SCAI expects to net $161 million from the sale of 7.9 million shares. Shareholders intend to sell 1.9 million shares, 19% of the IPO.

IPO proceeds are allocated to repay debt.

Disclaimer: This SCAI IPO report is based on a reading and analysis of SCAI'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.