|ENVISION HEALTHCARE CORP filed this Form 10-Q on 08/08/2017|
On December 1, 2016, AmSurg and EHH completed the Merger and the strategic combination of their respective businesses. We believe the Merger combined two industry leaders to create a premier healthcare services provider offering clinical solutions on a national scale, enabling the Company to create value for health systems, payors, providers and patients. Based on an evaluation of the provisions of ASC Topic 805, Business Combinations, AmSurg was determined to be the acquirer for accounting purposes. Under the terms of the Merger, each share of AmSurg common stock was converted into one share of Company common stock, each share of AmSurg 5.25% mandatory convertible preferred stock, Series A-1 (AmSurg Preferred Stock) was converted into one share of Company 5.25% mandatory convertible preferred stock, Series A-1 (Company Preferred Stock), and each share of EHH common stock was converted into 0.334 shares of Company common stock. Pursuant to the Merger, the Company issued 62,582,161 shares of common stock to former EHH stockholders, which were valued at approximately $4.26 billion based on the closing price of AmSurg's common stock on November 30, 2016. In addition, the Company issued replacement equity awards, which were valued at $180.3 million.
Concurrently with the Merger, on December 1, 2016, the Company entered into a new senior secured credit facility, incurring a new $3.50 billion term loan and an $850.0 million ABL revolving credit facility. At the closing of the Merger, the Company also completed a private offering of $550.0 million aggregate principal amount of 6.25% senior unsecured notes due 2024 to provide incremental financing to the Company, adjust scheduled maturities and reallocate between variable and fixed rate debt.
Fees and expenses associated with the Merger, which includes fees incurred related to the Company's equity issuances and debt financings, was approximately $199.0 million during the year ended December 31, 2016. Approximately $94.9 million was capitalized as deferred financing costs, $73.8 million was expensed as transaction and integration costs, and $30.3 million was recorded as debt extinguishment costs during the year ended December 31, 2016.
Physician Services Activity
The Company, through wholly owned subsidiaries, completed the acquisition of nine physician practices in the six months ended June 30, 2017 and six physician practices in the six months ended June 30, 2016. The aggregate amount paid for the physician practices and for settlement of purchase price payable obligations during the six months ended June 30, 2017 and 2016 was approximately $440.8 million and $255.4 million, respectively, and was paid in cash and funded by either operating cash flow or borrowings under the Company's existing or prior credit agreement or a combination thereof. In addition to the cash paid, approximately $110.0 million of consideration was deferred and paid in July 2017.
Ambulatory Services Activity
During each of the six months ended June 30, 2017 and 2016, the Company, through wholly-owned subsidiaries, acquired a controlling interest in four surgery centers. The aggregate amount paid for the centers during the six months ended June 30, 2017 and 2016 was approximately $33.3 million and $25.7 million, respectively, and was paid in cash and funded by either operating cash flow or borrowings under the Company's existing or prior credit agreement or a combination thereof. In addition to the cash paid, approximately $13.5 million of consideration was deferred and paid in July 2017. During the six months ended June 30, 2017 and 2016, the Company disposed of three surgery centers and two surgery centers, respectively, and recognized a net loss from the disposals of $3.9 million in the six months ended June 30, 2017 and a net gain of $3.3 million in the six months ended June 30, 2016.
Purchase Price Allocations
Acquired assets and assumed liabilities include, but are not limited to, accounts receivable, fixed assets, intangible assets, deferred income taxes and insurance liabilities. The valuations are based on appraisal reports, discounted cash flow analyses, actuarial analyses or other appropriate valuation techniques to determine the fair value of the assets acquired or liabilities assumed. The preliminary estimated fair value assigned to goodwill is primarily attributable to synergies expected to arise after the Merger by enhancing the growth profile and diversity of the Company across the healthcare continuum. The Merger did not result in additional tax deductible goodwill. A majority of the deferred income taxes recognized as a component of the Company's purchase price allocation is a result of the difference between the book and tax basis of the intangible assets recognized. The amount allocated to the deferred income tax liability is subject to change as a result of the final allocation of purchase price to amortizable intangibles. The accounting for the Merger is currently preliminary. The Company continues to obtain information relative to the fair values of assets acquired, liabilities assumed and any noncontrolling interests in the transaction which could result in material changes to the amounts allocated below. The Company expects to finalize the purchase price allocation for EHH as soon as practical.