Tepid Demand For 21st Century Oncology IPO

| About: 21st Century (ICC)


21st Century Oncology is struggling to get to their IPO.

Demand is limited due to high debt levels and "roll-up" growth strategy.

Company might need to retry with clearer financial targets.

Despite the bold title, this cancer care provider is only getting limited interest in their IPO. Part of the reason is their balance sheet, which includes debt that they are looking to restructure.

The 13M share deal is being brought by Morgan Stanley, JP Morgan and Wells Fargo with a hoped-for price range of $14 to $16. (In parallel with a $75M convertible.) The deal is scheduled to price tonight (Tuesday, May 20th), but that will depend on demand and the willingness of the company to revise terms downward.

21st Century Oncology (Pending:ICC) has 185 cancer treatment centers spread around with nearly 800 physicians involved. It's also a bit of a "roll-up" strategy which leads many investors to discount the growth rate and apply a lower valuation multiple.

Screenshot 2014-05-20 08.37.31

The investment story is fairly simple - cancer is a large and growing problem that requires treatment. We are the biggest and best option and will continue to grow by acquisition.

Revenues are now in the $1B/year range with positive adjusted EBITDA. There isn't much sizzle to this story and based on the lack of any long-term financial objectives, it may not be fully baked either. Add in some uncertainty around healthcare reform with a focus on cost-containment and reimbursement rates, and it's easy to see why investors are underwhelmed.

If the deal fails to get done, we'd send this company back to the drawing board and focus the growth and the story more on technology-driven improvements in transparency, cost efficiency and higher quality of care. Right now, the positioning is "we're a little better than a hospital-based center, on average, and we can buy up centers in a fragmented market."

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 (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.