In what could be one of the largest leveraged buyouts of the year Clayton, Dubilier & Rice, (CD&R) announced Monday that they have reached a definitive merger agreement to acquire Emergency Medical Services Corporation (EMS) for $64 a share representing a market capitalization of just over $2.82 billion. Shares dropped nearly 11% from Friday’s close at $70.66 on the news. Including the assumption of debt, the deal tops out at an estimated $3.2 billion. To read more on the investment strategy of CD&R and co-founder Joseph Rice, see my previous post Lessons in Achieving Success from Joseph L. Rice III of CD&R.
The EMSC Board of Directors has unanimously approved the acquisition terms and has recommended that their stockholders approve the transaction. The transaction is expected to close in the second quarter, subject to customary closing conditions, including regulatory approvals and approval by the company’s stockholders.
Onex Corporation and its affiliates, the holders of EMSC’s LP Exchangeable Units, own 31% of EMSC which represents sufficient voting power to approve the merger, and have agreed to vote in favor of the agreement. The private equity firm stands to make a 10x return on its 2005 investment in EMSC. Onex was a participant in the largest PE deal of 2010 when the firm, along with the Canada Pension Plan Investment Board, took British manufacturer Tomkins private for $4.4 billion.
The announcement of the deal, and the discounted offering, immediately sparked a flurry of investigations by national class action and shareholder rights law firms. Each practices’ claim is on whether EMSC’s board acted in the best interest of shareholders in approving the transaction and properly sought to maximize shareholder value. Claims such as these are nearly customary and not unexpected in mergers of this scale.
In 2010, together with Goldman Sachs, CD&R purchased medical products provider HGI Holdings. Other recent acquisitions by the New York based private equity giant include purchasing a 42.5% stake in the chemicals and commodity distributor Univar. Buyout firms including TPG Capital, Blackstone Group (BX), Carlyle Group and Apollo Management recently lost out in an auction of medical diagnostics company Beckman Coulter (BEC) when the company sold itself to Danaher Corp (DHR) for $5.8 billion.
The success of the CD&R-EMSC deal may signal a more favorable climate for PE shops that have in some recent cases found themselves outbid by strategics. A prevailing shift in capital strategy buoyed by the recovery could prove 2011 a profitable year for the companies that service these deals, namely Morgan Stanley, who topped the list in 2010 by advising on $594 billion of deals, followed by Goldman Sachs Group Inc. with $579 billion (see M&A Activity to Rise in 2011 Supported by PE Investment).
EMSC is a leading provider of emergency medical services in the United States. The company operates two business segments: American Medical Response, Inc., the company's healthcare transportation services segment, and EmCare Holdings Inc., the company's outsourced facility-based physician services segment. In 2010, EMSC provided services in more than 2,200 communities and 14 million patient encounters nationwide. In recent years, the company has benefited from strong market trends driven by the aging population, primary care physician shortages, and increased outsourcing of health services.
CD&R has obtained committed financing from Barclays Capital, Deutsche Bank Securities Inc., BofA Merrill Lynch, affiliates of Morgan Stanley, RBC Capital Markets and UBS Investment Bank. Goldman, Sachs & Co. and BofA Merrill Lynch acted as financial advisors to EMSC. Kaye Scholer LLP is advising EMSC on legal matters in connection with the transaction. Barclays Capital, Deutsche Bank Securities Inc., Morgan Stanley & Co., RBC Capital Markets and UBS Investment Bank acted as financial advisors, and Debevoise & Plimpton LLP acted as legal advisor to CD&R.