admin @ Mon, 2005-10-24 23:46
Tandem Health Care, which filed to go public on Oct. 7, promises to be the first nursing-home chain to hit the market in quite a while.
The last entrant in the field was Five Star Quality Care, (FVE ) which debuted at the tail end of 2001.
The lack of initial public offerings hasn't meant a lack of action, however. Stocks in the sector have been on a huge run the last two-and-a-half years, as the industry has rebuilt itself from a crash that bottomed out in 2000.
Tandem survived despite being founded in 1997 - the year before changes in Medicare laws brought on the industry's crisis.
"It looks like the time might be really ripe for something like this," said Francis Gaskins, president of IPOdesktop.com. "The baby boomers are finally here (in retirement age), and the number of nursing-home beds went down."
Still, stocks in the sector have largely been in a holding pattern the last few months. The industry also has been struggling lately with high insurance costs, especially in Tandem's home state of Florida. Many rivals have cleared out of the state for that reason.
Tandem owns, leases or manages 78 facilities in Florida, Ohio, Pennsylvania, Virginia, New Jersey, Tennessee and Maryland. The facilities offer various levels of care, including skilled nursing, assisted living and independent living.
Skilled nursing takes up the biggest chunk of the business, with more than 90% of the total beds. For that reason, Tandem is heavily dependent on government money. This year 46% of the firm's income from inpatient services has come from Medicare. Another 32% has come from Medicaid.
Tandem also offers ancillary services such as physical rehabilitation, institutional pharmacy, mobile imaging and hospice care. These services make up about 18% of revenue.
The firm has diversified through buyouts. In April, it paid $85 million to Diakon Lutheran Social Ministries to buy 15 facilities in Pennsylvania and Maryland. In December, it bought the Mobile Medical Group and Lighthouse Hospice L.P. for $57 million.
As the late-'90s crunch showed, the government has a lot of power in this industry through reimbursement policies. Current trends are moving in a favorable direction, but that could change.
Liability costs have skyrocketed for the industry in the last few years. In Florida commercial risk transfer insurance isn't available, and in New Jersey it's extremely expensive. So Tandem has made do by largely insuring itself.
The industry also suffers from a nurse shortage, limiting the firm's ability to increase its staff.
Another potential problem area is that Tandem has also been spending a lot of money on acquisitions, leading to significant debt.
Tandem's revenue has grown steadily over the years thanks to acquisitions. In the first half of this year it posted revenue of $247 million, up 31% from the prior year. Earnings before interest, taxes, depreciation and amortization, or EBITDA , more than doubled to $27 million.
Proceeds have not yet been estimated for the offering, but Tandem plans to use the money to redeem preferred stock, repay debt, and pay various fees related to the IPO.
Co-founded Tandem in 1997 after serving three years as chief operating officer of Mariner Health Group, which bought the company he founded, Legend Medical Services. Also worked at Meritcare and Summit Care in the 1980s. MPA in Health Services Administration from California State University, Dominguez Hills.
Co-founded the company, also moving over from Mariner Health. Before that worked at Integrated Health Services. MPA from American University.
Joined in March 1999. Before that worked brief stints at IntegraMed America and Superior Consultant Co., after spending 18 years at the Central Connecticut Health Alliance.
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