Spring 2019: MD Platinum Global Private Equity Update
Please join Craig Maddock, Vice President, and Edward Golding, Assistant Vice President with the Investment Management and Strategy team, as they discuss performance, investments, trends and new MD Platinum offerings.
Welcome everyone to MD Financials first ever Platinum podcast. My name is Edward Golding and I am the lead PM for our MDPIM Platinum Global Private Equity Pool and our MDPIM Platinum Global Real Estate Pool. Joining me is Vice President and Senior PM Craig Maddock. For 50 years, MD has empowered Canadian physicians to reach their long-term financial goals, now MD Platinum expands physician’s investment opportunities as we provide exclusive access to institutional investment opportunities in the form of global private equity and our current offering global private real estate.
Today’s podcast as we mentioned is the first podcast dedicated to our platinum offering and going forward we will be hosting a platinum podcast every quarter to review everything from performance, investments, industry trends and new product offerings from MD.
For today’s podcast we are going to provide an update on the MDPIM Global Private Equity Pool. Craig maybe you can provide a high-level summary of the investments we have made as of April 1st. The pool began operations in July 2018 and there has been tremendous progress in the number of investments over the past 9 months. As of April 1st, the pool has made 11 investments committing $22.6 million in capital for a total of 22% of total capital committed to the pool. Of that $22.6 million, $13 million are commitments to primary funds – which are new PE funds managed by third party PE managers, $2.4 million are commitments to secondary funds – which are PE funds that are of an older vintage and are traded on a secondary market, and $7.2 million are commitments to direct investments or in other words an investment into a specific company.
From a geographic perspective $8.4 million is invested in the US, $3.1 million in Europe, $3.3 million in Asia-Pacific, and $7.8 million in Global investments. When we examine it from an industry perspective, $3.6 million is invested in Software, $3.8 million in Insurance, $1.3 million in Health Care, $1.1 million in Energy, and $12.9 million are in diversified industries.
Ed maybe you can now get more specific and do a deep dive into one of the investments we have made on behalf of our physician clients. Thanks Craig, in September 2018, we invested $1.3 million of our client’s capital in a company called Envision Healthcare Corporation in a take-private deal alongside the lead sponsor of the deal KKR & Co. The deal agreed to pay Envision shareholders $46 per share which represented a 32% premium to the volume weighted average price since the company first announced its review of strategic alternatives in November 2017. The total transaction cost including fees was $10.6 billion which represents and entry multiple of 11.1x Q1 2018 LTM EBITDA (which is earnings before interest taxes depreciation and amortization). The acquisition was financed with $3.5 billion in equity and $7.3 billion in debt.
Envision Healthcare Corporation is a leading provider of outsourced physician services to hospitals and national operator of ambulatory surgical centers across 45 states. Envision employs or contracts with over 25,000 physicians across numerous specialties and operates with three main segments:
- Physician services (which represents 80% of revenues) is a leading provider of outsourced physician services across multiple specialties within hospitals and other healthcare facilities. The company treads over 30 million patients per year. Envision has the leading US market share in Emergency Department and hospitalist medicine services and is also the leading anesthesia provider to hospital surgery departments in the US.
- Ambulatory Surgical Centers which represents 16% of revenues is a leading owner and operator of single and multi-specialty ambulatory surgical centers in 35 states with 264 facilities. The company performs 1.7 million surgical procedures per year.
- Evolution which represents 4% of revenues is Envisions post-acute continuum of care, including home health, hospice and infusion therapy.
We made this investment on behalf of our physician clients due to several compelling reasons:
- Favorable industry outlook and secular tailwinds
- The company is an industry leader with nationwide and diversified market presence
- Strong growth potential
- Favorable reimbursement outlook
- Capital efficient business with attractive cash flow generation
- Ability to pursue accretive M&A in a fragmented market
With our thesis being very positive it is our expectations that the holding period for this company is approximately five years with an exit in 2023. The exit could be in the form of selling to another PE firm, a strategic buyer or take the company public again. Over the five-year time horizon, it is our expectation that management will grow revenues organically and through small strategic acquisitions by approximately 6% annually and to grow EBITDA by 8% annually. The increase in profitability over the five-year holding period should also allow the company to pay down approximately $1 billion in debt and lower the debt to EBITDA ratio from 6.5x at the close of the transaction to 4.2x in 2023. While we are forecasting for contraction of the exit multiple relative to our entry multiple, the increase in profitability and the paying down of debt is expected to provide our investors with a return north of 20% and a multiple of capital more than 2.5x.
With that we are coming to an end to this quarter’s podcast. As a reminder our MDPIM Platinum Global Real Estate Pool is currently available for sale. Please contact your advisor for details as soon as possible as the closing for the pool is in June of this year.