So far this year, two of the largest private ambulance companies in the U.S. are being purchased by private equity firms, and two regional ambulance service providers have been purchased by a global player that boasts it’s the largest private ambulance services provider in Europe.
According to industry insiders, this isn’t your typical buyout. This is a potential game-changer for EMS service in this country.
Typically, when a buyout occurs, the acquiring company takes one of two paths. Either it breaks up the company it purchased and sells off the pieces for cash, or it holds onto the company, betting that it—and the industry it represents—is on the leading edge of a financial wave.
“I believe that the private equity firms are looking at private ambulance companies as being at the base of a wave,” said Kittitas Valley Fire and Rescue Fire Chief John Sinclair. Sinclair is a long-time, active member of the International Association of Fire Chiefs (IAFC) EMS Section and the section’s international director.
Sinclair said the potential growth is spurred by several dramatic market shifts. The first is the addition of an estimated 34–40 million people to the insured ranks thanks to healthcare reforms. Many people who had been covered by Medicaid programs and, thus, under-insured, will be switching to insurance policies that provide higher reimbursement rates—a potentially positive outcome for EMS transports.
Second, the first of the baby boomer generation reached retirement age this past year. Over the next 15 years, 78 million Americans will reach retirement age.
“We know that when people retire and don’t remain active, they begin to have health problems,” Sinclair said. “As a result, there’s a demographically significant infusion over the next 15 years of growth in medical transport.”
Stephen Williamson, president and chief executive officer of Oklahoma’s Emergency Medical Services Authority (EMSA) and president of the American Ambulance Association, said the trend toward private equity company owners of private ambulance companies isn’t cause for concern.
“Just because it has a profit possibility doesn’t make anything ‘good’ or ‘bad,’” he said.
In fact, Williamson sees the current climate of health reform providing an incentive for better patient care.
“You don’t have healthcare without regulation,” he said. “You’re going to have to do your job. This isn’t a free gift. You’re going to have to earn every dollar.”
He envisions increased quality measures and more measureable goals as a result of government focus on healthcare. “What we have now is unsustainable. We will have to increase efficiencies,” he said.
Mark Bruning, president of American Medical Response Inc., believes this is an extraordinary time that provides a distinct opportunity for EMS to redefine itself. “Our practice of medicine in the out-of-hospital environment is going to evolve,” he said. “EMS is uniquely positioned to solve some of the healthcare challenges our country faces.” At the same time, he said, EMS must continue to provide value in a cost-effective way.
Care Ambulance Service & LifeStar
At the first of the year, Falck A/S, Europe’s largest private ambulance services provider, purchased Care Ambulance Service Inc., a provider of ambulance transport and 9-1-1 response services for patients in Southern California’s Los Angeles and Orange counties, where it operates more than 135 ambulances.
Care Ambulance was founded by Carl Richardson as a one-ambulance operation in 1969, and continued to be operated as a family business until its purchase in 2011. Care Ambulance co-owners Dan and Rick Richardson have now joined Falck.
This past April, Falck completed acquisition of LifeStar, also a family-run ambulance transportation business. It was founded in 1975 to serve the residents of Long Island, N.Y. Today, LifeStar operates 440 ambulances and other rescue vehicles, supplying EMS to citizens in New York, New Jersey, Maryland, Pennsylvania, Washington D.C., Alabama, Florida and Georgia.
With this acquisition, Falck becomes the third largest, privately owned ambulance service in the U.S.
Founded by Sophus Falck in 1906 as a rescue service in Denmark, Falck A/S operates in 25 countries on five continents. It’s the only operator with ambulances in several countries in Europe.
In 1988, the Falck family sold the company to Baltica, a Danish-based insurance company. Following a series of mergers, Nordic Capital, a private equity firm based in Stockholm, Sweden, purchased the shares of Falck. The parent company’s name was changed to G4S, and its safety division operates as Falck A/S.
Falck A/S’s enterprises are split into four divisions: emergency, healthcare, assistance and training. The emergency division includes ambulance transport service and fire suppression. The 2009 Falck annual report states that the company is a world leader in several sectors, including fire services, and rescue and safety courses. Falck currently operates training sites in the U.S. in Louisiana and Texas.
At the end of March, Rural/Metro Corp. announced it has entered into a definitive agreement for the acquisition of the company by the private equity firm Warburg Pincus LLC. Founded 50 years ago by Lou Witzeman, Rural/Metro is one of the largest ambulance companies in North America, with 8,000 employees in approximately 400 communities. Although its primary business is emergency and non-emergency medical transportation services, it also provides private fire protection services, personal emergency response systems and disaster response.
Founded in 1939, Warburg Pincus LLC traces its roots to E.M. Warburg & Co., according to the company website. The firm was acquired by Lionel I. Pincus & Co. in 1966, forming Warburg Pincus. Its investments, which are worth more than $35 billion, are diversified in more than 600 companies in more than 30 countries around the world. Warburg Pincus holds a number of investments in healthcare companies, including American Medical Systems, Coventry Health Care, Harbin Pharmaceuticals and RegionalCare Hospital Partners.
Wall Street insiders anticipate that Rural/Metro’s biggest shareholder, European ambulance operator Falck A/S, will likely support the acquisition, offsetting the threat of shareholder lawsuits that have overshadowed the deal since it was announced.
American Medical Response
American Medical Response (AMR) Inc. is currently undergoing a change of ownership. As of this publication’s deadline, Clayton Dubilier & Rice LLC is in the process of completing a deal to acquire AMR’s parent company Emergency Medical Services Corporation (EMSC), of Greenwood Village, Colo., for a reported $3.2 billion.
Clayton Dubilier & Rice, a private equity firm consisting of corporate leaders from global businesses such as Allstate, Emerson Electric, General Electric and Proctor & Gamble, manages the investment of approximately $15 billion in 48 U.S. and European businesses. It has a transaction value of approximately $80 billion, according to the company’s literature.
Through AMR, EMSC is the largest provider of EMS in the U.S. EMSC also operates a second, category-leading business segment—outsourcing facility-based emergency-department physicians through a company called EmCare Holdings Inc.
EMSC was founded in 2005 by an investor group led by Onex Partners LP, Onex Corporation and members of AMR’s management team. It purchased AMR and EmCare from Laidlaw International Inc. that same year.
AMR was established when several regional ambulance providers consolidated to form the company in 1992. In 1997, it merged with Med Trans, a division of Laidlaw, making it the largest ambulance service provider in the nation, serving more than 2,100 communities throughout the country.
Baring glitches in regulatory approvals and approval by EMSC stockholders, the transaction is expected to be completed in the second quarter. Once that happens, EMSC will become a privately held company and will no longer trade common stock on the New York Stock Exchange.
Is Fire Next?
Sinclair expects to see a further growth in market share due to aggressive conversions of existing fire-based EMS systems. Several of the parent companies that have purchased private ambulance companies also provide fire suppression service. “It’s not just EMS; its fire,” Sinclair said. “What is the strategic plan for these companies?”
The current economic crisis has left many communities hard-pressed to fund fire or EMS. For some, a quick fix has been to off-load EMS to private companies. That model is being played out for fire services as well.
The city of San Carlos, Calif., is presently considering an offer from Florida-based Wackenhut Services Inc. to take over its fire service and EMS. Wackenhut, which is owned by Falck A/S, offers a considerable savings per year while increasing staff levels at the Belmont-San Carlos Fire Department.
Although the private fire and emergency services company is proposing a 10-year contract, Belmont and San Carlos have been in mediation talks with a retired judge to try to resolve differences over the joint fire service. Without a resolution, the Belmont-San Carlos Fire Department is scheduled to dissolve in October.
The Wackenhut proposal offers San Carlos multiple first-year service options, ranging from the three firefighters per station for just over $4 million annually to a plan that includes four firefighters, sport utility vehicles and ladder trucks for $4.6 million annually.
According to the Falck A/S website, Wackenhut Services Inc. (WSI) is the U.S. government’s largest contractor for professional security services, with 12,000 employees protecting key sites in the U.S. and abroad.
San Carlos officials estimate it would cost the city $12 million to $14 million for the same services if it kept the joint fire department with Belmont intact.
The city has also received a $5.9 million bid from Redwood City that’s based on a model similar to the structure used by North County Fire, in which partner cities share management but are responsible for paying their own firefighters.
Wackenhut Services was recently awarded the contract for fire services at nearby San Jose (Calif.) International Airport and provides fire services and EMS for the National Aeronautics and Space Administration’s Ames Research Center in Mountain View, Calif.
WSI is a security services firm founded, in Florida, in 1954 by George Wackenhut and three former Federal Bureau of Investigation agents. Some of the company’s first contracts were with Kennedy Space Center and the U.S. Atomic Energy Commission’s nuclear test site in Nevada.
In 2002, the company—now the second largest security firm in the U.S.—was acquired by its rival Falck A/S, which was called G4 Falck at the time but has since changed its name to G4S.
Sinclair believes this push for privatization will be similar to what happened in the 1980s, and that should concern fire departments across the country. “It’s the responsibility of every fire chief to do an environmental scan … to determine our strengths and weaknesses and what we can do to stabilize our system and enhance our value to our community,” Sinclair said. “Ultimately, all EMS is local.”
In his 30-plus years in the business, Williamson said he has witnessed the business cycles come and go. Today, he sees more concern over quality rather than quarterly growth. “It could be an exciting time for these companies,” he said. “The only way they can [make] good profit is to be efficient and provide quality service.” Companies that learn to become sustainable will survive. Those that don’t won’t.
“On the private side, it’s selflimiting,” Williamson said. “Either you are efficient and survive or inefficient and you don’t survive.”