PhyMed, backed by OTPP, awaits final bids

The Credit Suisse-run process, targeting strategic buyers, comes six-plus years after the Canadian pension fund's LBO of the anesthesia platform.

Ontario Teachers’ Pension Plan is seeking a buyer for PhyMed Healthcare Group, the provider of anesthesia services it bought more than six years ago, according to people familiar with the matter. 

Credit Suisse is advising on the process, sources said, with final bids for the Nashville company due this Friday.

PhyMed is marketing an adjusted EBITDA figure just north of $40 million, however bidders are likely to underwrite a lower figure in the $30 million range, the people said. A deal is expected to be valued at less than $300 million, one of the people said, implying a single-digit EBITDA multiple. 

The strategics-only process is anticipated to field bids from PE-backed companies, sources said. The most logical suitors, they expect, are US Anesthesia Partners (USAP), backed by Berkshire Partners, GIC and Welsh, Carson, Anderson & Stowe; or NorthStar Anesthesia, owned by holding company Cranemere. 

It’s less likely that American Securities’ North American Partners in Anesthesia (NAPA) is looking this time around, sources speculated, although two sources told PE Hub the companies had deal conversations years ago.

NAPA, for its part, has “killed it”, one source said, since buying American Anesthesia from Mednax last year. “I don’t think NAPA needs them” after adding the Mednax unit and executing on other M&A, added another source.

OTPP’s attempt to exit, meanwhile, comes after years of turnover in the C-suite.

Most recently, PhyMed’s Marty Bonick departed as CEO in summer 2020 less than three years into his role, joining Nashville-based Ardent Health Services as CEO. Bonick has not been replaced, although longtime PhyMed CMO Patrick Forrest last year took on the additional role of president while Steve Mason has been promoted to COO, according to press reports.  

Before Bonick, Sami Abbasi was named CEO 2015, departing in 2017. Frederick Miller previously held the CEO post for just two years beginning in 2013. 

PhyMed in 2020 also restructured its debt, engaging Guggenheim Securities at that time, sources said. Now, OTTP hopes to unload the company at a value that clears its existing debt load, one person said.

The Canadian pension plan’s investment dates to December 2014, snapping up the business from Denver-based Excellere Partners in a leveraged buyout. In connection with the deal, PhyMed received $165 million in senior term loan financing, a $30 million revolving credit line, as well as first lien senior secured loan of $10 million debt facility, according to PitchBook.

Under OTPP, PhyMed in 2018 bought AAA Anesthesia Associates and Grand Canyon Anesthesia. In 2017 it bought Traverse Anesthesia Associates.

Excellere’s original investment in August 2012 was valued at $42 million, according to PitchBook

PhyMed today works with more than 1,000 clinicians and encompasses 150 locations, providing services throughout healthcare systems, ambulatory surgery centers and office-based anesthesia, according to its website. 

Broadly speaking, from a reimbursement perspective, “[anesthesia] rates have only been affected modestly in the last several years and are generally pretty stable,” Brian Fortune, president of Farragut Square Group, told PE Hub. There was a more impactful one-time cut for anesthesia providers exposed to gastroenterology in 2018, but most adapted, he added. 

In the broader outsourced physician staffing front, balance billing issues have long been viewed as an overhang. But staffing businesses find themselves better positioned after lawmakers in December agreed to put an end to “surprise medical billing” – thus protecting patients from receiving large unexpected, out-of-network bills following medical procedures. 

The long-awaited legislation will be effective January 2022 as part of The No Surprises Act, which was included within the omnibus spending bill signed into law on December 27.

OTPP and Credit Suisse declined to comment. PhyMed executives could not immediately be reached.