MEDNAX Divests American Anesthesiology to Avoid Cash Losses

MEDNAX, Inc. MD recently completed the sale of its American Anesthesiology to North American Partners in Anesthesia (NAPA).

Following this deal, NAPA will now have 6,000 clinicians and staff at more than 500 facilities across 20 states alongside in the District of Columbia, serving above three million patients annually.

MEDNAX will provide particular transition services to NAPA for maximum 18 months, ensuring a smooth transition for American Anesthesiology’s clinicians and employees.

Rationale Behind the Transaction

MEDNAX has been facing challenges in this business line due to the coronavirus outbreak. Cancellation of elective surgeries to accommodate coronavirus-infected patients is hurting the company’s revenues. MEDNAX expects the COVID-19 pandemic to induce a cash loss of at least $150-$250 million for American Anesthesiology.

For April, the company estimates the operating revenues for American Anesthesiology to be below the pre-COVID-19 outlook by around 60-70% on a preliminary basis. The sale is expected to mitigate the COVID-19 effect on its revenues and operations to some extent.

Despite contributing to 36% of its 2019 annual revenues and performing 1.8 million anesthesia procedures last year, the company has been struggling with numerous other issues in this business line, such as rise in labor costs and other expenses, scarcity of clinicians, restricted revenue growth based on adverse changes in payor mix, etc.

This divestiture will help the company streamline its operations and focus on its Pediatrix & Obstetrix and MEDNAX Radiology Solutions medical groups besides Surgical Directions. Additionally, the deal is expected to help the company reduce its risk profile.

We believe, the combination of MEDNAX’s American Anesthesiology with NAPA will lead to comprehensive healthcare, which in turn, will improve health outcomes.

Financial Terms

The company received around $160 million in cash and retention of net working capital, primarily accounts receivable. It also earned a contingent consideration in the combined NAPA entity for up to $250 million, subject to conditions.

Zacks Rank

Shares of this Zacks Rank #4 (Sell) company gained 5.7% following the aforementioned news on May 6, underperforming its industry’s increase of 8.3%. The performance looks pale in comparison to other companies in the same space, namely HCA Healthcare Inc HCA, Tenet Healthcare Corporation THC and Universal Health Services Inc UHS, which have rallied 8.5%, 13.9% and 6.8%, respectively, in the same time frame.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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