Envision, AmSurg Deal Looks Like A Good Strategic Fit: Goldman

Goldman Sachs said the Envision Healthcare Holdings Inc EVHC merger deal with Amsurg Corp AMSG is a good strategic fit and sees potential upside risk to the synergy benefits.

Goldman, who is acting as a financial advisor to AmSurg in the deal, said its Buy ratings for both companies and price targets are under review.

Analyst Matthew Borsch is positive on the deal due to:

(1) "higher economies of scale across healthcare given increasing regulatory and IT systems complexity and investment requirements, furthered by managed care and provider system mergers";

(2) "advantages in multi vs. single physician specialty contracts with hospitals and other providers"; and

(3) "greater ability to provide a spectrum of services as the companies seek to accept bundled reimbursement (e.g., for subacute services under EVHC's emerging Evolution Health that is currently housed in physician services."

The companies announced to merge in an all-stock deal based on a fixed exchange ratio of 0.334 AMSG shares per EVHC share. Boards of both companies have approved the proposed deal, which is expected to close by year-end subject to regulatory and shareholder approvals.

The companies expect about $100 million of cost/revenue synergies to be "fully realized within 3 years of closing" with the proposed deal being accretive to the combined companies' earnings in 2017 and "double digit accretive" by 2018.

At time of writing, shares of Envision fell 5.67 percent to $25.95, while AmSurg rose 1.83 percent to $78.92.