Based in Nashville, Tennessee, Vanguard Health Systems (proposed VHS) is scheduling a $550 million IPO with a market capitalization of $1.6 billion at the price range mid-point of $22 for Thursday, June 23, 2011. The full IPO calendar includes five IPOs.
SUMMARY -- VHS is an acute hospital company growing by acquisition.
In the last 18 months leveraged buyout shareholders paid themselves $775 million. And VHS has committed to spending another $850 million -- which is a lot of money for a company with weak financials and an over leveraged balance sheet – to upgrade the recent purchase of the Detroit Medical Center.
VALUATION -- VHS has weak financials: 0.2% profit margin in the March 2011 quarter, when interest took 86% of operating profits. The annualized P/E ratio of 169 is high relative to the sector.
VHS is the most expensive of the hospital group in terms of P/E ratios and price-to-book value.
Valuation Ratios | IPO Mrkt | Price / | Price / | Price / | Price / | % offered |
Annualizing March 9 mos | Cap (mm) | Sales | Earnings | BookValue | TangibleBV | in IPO |
Vanguard Health (VHS) | $1,573 | 0.3 | 169 | 5.4 | -2.6 | 35% |
COMPARE
Valuation Ratios | IPO Mrkt | Price / | Price / | Price / | Price / | Gross |
Annualized March '11 nine mos | Cap (mm) | Sales | Earnings | BookValue | TangibleBV | Profit % |
Vanguard Health (VHS) | $1,573 | 0.3 | 169 | 5.4 | -2.6 | 85% |
Tenet Healthcare (THC)* | $2,890 | 0.3 | 24.4 | 1.6 | 4.0 | 84% |
Universal Health (UHS) | $5,080 | 0.8 | 18.5 | 2.4 | -10.1 | 82% |
HCA Holdings (HCA) | $17,480 | 0.6 | 17.1 | -2.0 | -1.3 | 84% |
Community Health Sys (CYH) | $3,820 | 0.3 | 14.3 | 1.7 | -2.1 | 86% |
Health Mgt Assc (HMA) | $2,620 | 0.4 | 12.4 | 4.4 | -8.2 | 86% |
*THC: P/E eliminates $1mm tax credti in the September 2010 quarter
BUSINESS -- As of March 31, 2011, VHS owned and operated 26 hospitals with a total of 6,280 licensed beds, and related outpatient service facilities complementary to the hospitals in San Antonio, Texas; metropolitan Detroit, Michigan; metropolitan Phoenix, Arizona; metropolitan Chicago, Illinois; and Massachusetts, and two surgery centers in Orange County, California.
As of March 31, 2011, VHS also owned three health plans with approximately 242,300 members.
WEAK NINE MONTHRESULTS -- During the nine months ended March 31, 2011, revenue growth was limited by significant challenges including less demand for elective services, some of which related to a weaker general economy, and a shift from services provided to managed care enrollees to uninsured patients or those covered by lower paying Medicare or Medicaid plans.
LEVERAGED BUYOUT -- VHS was a Blackstone sponsored leveraged buyout that is 83% pre-IPO owned by Blackstone (BX) 66% & Morgan Stanley (MS) 17%.
On September 23, 2004, VHS Holdings LLC and Health Systems Acquisition Corp., a newly formed Delaware corporation, The Blackstone Group, together with its affiliates acquired securities representing a majority of VHS’s common equity.
DETROIT MEDICAL CENTER -- VHS has committed to spending another $850 million, which is a lot of money for a company with weak financials and an over leveraged balance sheet.
Effective January 1, 2011, VHS purchased assets of The Detroit Medical Center, a Michigan non-profit corporation with assets consisting primarily of eight acute care and specialty hospitals with a combined 1,734 beds in the Detroit, Michigan, metropolitan area and related healthcare facilities. VHS paid cash of $368.1 million
VHS committed to spend $350.0 million during the five years subsequent to closing for the routine capital needs of the DMC facilities and an additional $500.0 million in capital expenditures during this same five-year period. DMC generated total revenue of $2.1 billion during its most recent fiscal year.
DIVIDEND POLICY -- On January 26, 2011, paid dividends to equity holders of $444.7 million in the aggregate. On January 29, 2010, repurchased 14,458,646 shares (adjusted to give effect to the expected stock split) of common stock from stockholders for a purchase price of $300.6 million in the aggregate. In summary VHS has paid out $775 million to shareholders since January, 2010.
USE OF PROCEEDS -- VHS expects to net $512 million from the sale of 25 million shares. The proceeds are allocated to repay debt
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
