Wednesday, February 2, 2011

Is the MedQuist IPO Worth $561 Million?

IPOdesktop submits:

Medquist's (MEDQ) $86mm IPO with a market capitalization of $561mm at the price range mid-point of $11 is scheduled for Friday, February 4, 2011. Thirteen others totaling $1.1B are also scheduled.

Summary and Valuation

MEDQ is the largest provider of clinical documentation in the U.S. 98% of revenue is recurring. MEDQ can handle many of the largest and most complex healthcare delivery systems in the U.S.

Valuation: MEDQ's annualized P/E ratio for the nine months ended September 2010 is 55; relatively high, especially compared to a competitor listed in the S-1 filing, Transcend Services (TRCR). TRCR has an annualized P/E of 26, less than half of MEDH’s 55 P/E. The gross margin for both companies is in the 35% range. MEDH is highly leveraged, with 77% of operating income paid to interest for the nine months ended September.

Note: The shares were delisted from the London Stock Exchange’s AIM on January 27, 2011, and last traded on the AIM on December 24, 2010, at £6.08, equivalent to $9.36 per share.

Business

During the three months ended September 30, 2010, MEDQ processed on an annualized run rate basis more than 3.4 billion lines of clinical documentation on its platform. MEDQ’s size allows it to handle the clinical documentation requirements of many of the largest and most complex healthcare delivery networks in the United States, provides economies of scale, and enables it to devote significantly more resources to enhancing solutions through research


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