Private Equity Sinking Big Bucks Into EMS

You might never know it to look at your paychecks, but the private ambulance business has become quite a big-money game. Last year, Bain Capital paid an estimated $1 billion to acquire America’s largest independent emergency air outfit, Air Medical Group. Earlier this year, Warburg Pincus scooped up Rural/Metro in a deal that valued the company at around $700 million. About that time, Clayton, Dubilier & Rice obtained AMR’s parent company, EmergencyMedical Services Corp., in a deal totaling approximately $3.2 billion.

The private equity firms making these purchases aren’t run by fools. At a time of rising costs, squeezed reimbursements and overall penny pinching across the ambulance world, they think the ambulance world is worth sinking big bucks into. What’s up with that?

“These are very sophisticated investors, and they’re not just looking for ways to get bigger,” says David White, CEO of New York-based TransCare, the largest privately owned ambulance service in the mid-Atlantic states and a longtime veteran of the private ambulance business. “They’re looking for ways to create more value when they put everything together. With acquisitions and consolidations, there’s no reason to do it without a clear path that says 1+1=3—i.e., the whole is more valuable than just the individual parts. If you don’t have that, why are you consolidating?”

So what value do these big-money buyers see? Well, current economic woes aside, consider the long-range forecast for the EMS/ambulance business:

• In the next 15 years, around 80 million Americans are expected to retire. Retirees use ambulance services at around 1½ times the rate of those working.

• Under healthcare reform, some 30–40 million Americans who previously lacked health insurance will gain access to it. That potentially means payers for a lot more transports.

• Cities and counties facing financial pressures may see savings in outsourcing EMS jobs to private contractors.

• Under pressures for greater efficiency, there may be opportunity for lucrative new arrangements with other healthcare players—for instance, working with hospitals to manage discharges and prevent readmissions.

In short, buyers see big money around the bend, and that’s helped spark a wave of mergers and acquisitions the likes of which hasn’t been seen since the early 1990s. But it would be a mistake, White told attendees at the Pinnacle EMS Leadership & Management Conference in July, to draw too many parallels between current events and that frenzied “land grab.” The latter was driven by expectations of short-term profit. The former seems more about the long haul.

“In 1992, when the first consolidation wave started, ours was very much a ‘you call, we haul’ transportation business,” White says. “These folks now are going to be looking for other things they can do. They’re going to want to see partnerships with hospitals and municipalities happening—that was part of their value proposition when they invested. They’re expecting it.”
To get there is less about buying than building—an inversion of 1992. Once touched off then, the earlier great consolidation wave—which involved players like CareLine and a burgeoning Rural/Metro—rapidly spiraled out of control. Purchases spawned more purchases, Wall St. transaction fees piled up, stocks rose. Eventually consolidators started consuming each other. There was, White said, too much money chasing one industry, which artificially ballooned prices and accelerated consumption.

The bottom fell out with the advent of the negotiated rulemaking process. When the process—in which federal agencies and affected interest groups jointly work out the terms of new administrative rules—was adopted for ambulance reimbursement, it cost the big consolidators tens of millions of dollars. Heavy debt limited their ability to handle the shock, and the proverbial bubble burst. Rural/Metro’s stock tanked, and companies like TransCare and Laidlaw ended up in Chapter 11.