Health care outsourcing companies are bad at doing deals, and private equity firms are their fixer of choice.
Envision Healthcare Corp. on Monday agreed to sell itself to KKR & Co. for $46 a share, or $9.9 billion including debt. The deal caps a more than six-month strategic review and comes just 18 months after Envision combined with AmSurg Corp.
The Envision-AmSurg merger was meant to create a health care-services behemoth with $8.5 billion in sales and expertise in everything from ambulatory surgery to anesthesiology. And at the time, bulking up seemed like the right strategic move, with Medicare and other payers seeking to incentivize better coordination. But uncertainty over the Affordable Care Act has since weakened patient demand and undermined Envision’s ability to capitalize on the revenue synergies that provided most of the financial logic for the AmSurg deal. Hurricanes in Texas and Florida last year didn’t help. And Envision was ill-equipped to grapple with both the changing landscape and the deep-rooted organizational work necessary to make a large merger-of-equals succeed.
A ragtag strategy is evident on the company’s website, with AmSurg’s name living on for an ambulatory surgical division that’s carved out from the rest of the company. This February statement from CEO Christopher Holden about the challenges of drafting a 2017 plan for the merged entity is even more telling:
“Because you’re not allowed to really talk to one another when you’re going through a merger process, the legacy AmSurg and legacy Envision each prepared their pieces and then we stitched those together at the time of the merger and it became the budget that we lived with.”
Envision made things harder on itself by continuing to gobble up physician groups across the country even as it was still digesting AmSurg. It’s also been accused of sending enormous bills for out-of-network services that come as a surprise for patients who in some cases deliberately sought out hospitals within their insurance networks. These predatory practices led to a class action lawsuit from investors and soured Envision’s relationship with UnitedHealth Group Inc., the largest U.S. insurer and at one point a reported possible buyer for all or part of the company. Envision’s efforts to change its ways are likely to weigh on sales.