Is the MedQuist IPO Worth $561 Million?

Feb. 2.11 | About: MModal Inc. (MODL)

Medquist's (OTCPK:MEDH) $86mm IPO with a market capitalization of $561mm at the price range mid-point of $11 is scheduled for Friday, February 4, 2011. Thirteen others totaling $1.1B are also scheduled.

Summary and Valuation

MEDH is the largest provider of clinical documentation in the U.S. 98% of revenue is recurring. MEDH can handle many of the largest and most complex healthcare delivery systems in the U.S.

Valuation: MEDH's annualized P/E ratio for the nine months ended September 2010 is 55; relatively high, especially compared to a competitor listed in the S-1 filing, Transcend Services (TRCR). TRCR has an annualized P/E of 26, less than half of MEDH’s 55 P/E. The gross margin for both companies is in the 35% range. MEDH is highly leveraged, with 77% of operating income paid to interest for the nine months ended September.

Note: The shares were delisted from the London Stock Exchange’s AIM on January 27, 2011, and last traded on the AIM on December 24, 2010, at £6.08, equivalent to $9.36 per share.


During the three months ended September 30, 2010, MEDH processed on an annualized run rate basis more than 3.4 billion lines of clinical documentation on its platform. MEDH’s size allows it to handle the clinical documentation requirements of many of the largest and most complex healthcare delivery networks in the United States, provides economies of scale, and enables it to devote significantly more resources to enhancing solutions through research and development than most competitors.

As of September 30, 2010, the average tenure of the top 50 customers was over five years, and 98% of revenue was from recurring services. MEDH serves more than 2,400 hospitals, clinics, and physician practices throughout the United States, including 40% of hospitals with more than 500 licensed beds.

Use of Proceeds

$28.5mm from sale of of 3.5mm shares. Shareholders intend to sell 4.3mm shares. Proceeds for working capital and other general corporate purposes.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.