Should I invest in my company

[Western wolf]

I work in an Emergency Department that is run by US Acute Care Solutions (formerly EMP).  They are offering employee physicians the opportunity to purchase shares in their company.  I know WCI's take on purchasing individual stock is not favorable, however, I am curious if this a different situation since it would not be a publicly traded stock and a unique opportunity that could be very profitable.  The company seems to be doing great right now as they follow the mainstream model of buying out smaller ED's all over the country and forcing their docs to work in corporate medical groups.  I'm tempted to treat this like a riskier investment and purchase some shares.  Any suggestions or advice would be appreciated.

 

Thanks!

[East coast]

Why are they opening up shares for purchase? Are the owners just cashing out? or is there a plan for the money? Maybe more buy-outs? If things are going so great, why can't they do it without selling equity?

This may or may not be relevant here, but as a general rule I'm skeptical of double exposing myself to my employer (especially if I don't have control-type ownership) - I'm already exposed because my employment is directly linked to how well they are doing (relatively speaking of course), and then to add on top of that, I'd now be exposing myself to share price of that same firm.

[ShahMD]

I'm in the same boat and very interested to see what people say.

[Crazyroadtodublin]

After being burned multiple times with private equity deals I would ask you to consider the following points.

 

1.  Is there a buy/sell agreement that you can pull the trigger on?  (How do you get your money out?)

 

2.  Whats the valuation of the company?

 

3.  There is a reason the employees are being offered these shares, what is it?  If they need capital why can't they get it???

 

4.  These investments are on a different planet when you consider the risk compared to an individual stock, which is much riskier than an index fund.

 

I wouldn't touch it with a ten foot pole, but if you really want to limit your investment to only what you can afford to lose.

 

[GoBills]

I have the same option to purchase this stock, so following along.  My understanding is that the company is majority owned by physicians, and minority owned by an equity firm.  The company is only 2 years old, and supposedly the reason to raise capital is that the initial phase of acquiring 'founding groups' was more successful then originally anticipated.  Acquiring these groups requires capitol, which my understanding is that the equity firm is happy to provide, but leadership would prefer to keep the company physician owned, hence this option.

 

My initial thought is it is a high risk, high reward option.  Mainly high risk cause betting on one company, and at least initially tough to liquify the investment.  However, suspect the company has the potential to quickly grow in size, and worth.

[jfoxcpacfp]

According to the above information, I would hazard a guess that the company may be growing so quickly in the initial startup stage that, yes, they do need capital. Not unusual.

To address  East coast's query, corporations often offer shares in the company to employees under the theory that, if the employees have some skin in the game, they will be more loyal and work harder.

That said, an investment in a company at the 2-year mark is a total question mark. Investors have no way of knowing if there is a bombshell that will cause the company to implode, the risks of competition, the quality of management, etc. etc. You may end up with a 10-bagger, you may end up with 10 cents on the dollar.

My rule of thumb is to never invest more than 10% of your portfolio in employer's stock but that is for an established company. In this case, I would say no more than 5%, if that. If I were advising a client, I would encourage them to pass on the deal.

[ShahMD]

Bumping this. Hoping for a reply by the white coat investor himself

[GoBills]

I agree that it would be great to hear from the white coat himself, especially given his ER background.  In terms of USACs I have little concern that the company would fail.  It is large enough that small marketplace fluctuation will allow it to survive, and with its new economy of scale, their will be better reimbursement rates from insurance companies and eventually lower overhead.  The equity firm has helped with several other healthcare firms and the worst one I believe doubled in value in 5 years.  To me I agree with the above point that one should limit this investment to a low percentage of your overall profile. I personally am struggling with how this investment ties up your money, and how it is not going to be easy to monetize it, at least initially.  While this would be a long term investment, I keep coming back if it is worth the loss of flexibility.  What are the thoughts of others with the option?

[Western wolf]

Thanks everyone for the great comments. Personally I feel satisfied with the direction this group is going and their reason for wanting more money. I can understand that this is a risky investment and that I could lose everything. If I use a small percentage of my portfolio as suggested above I think I could afford the risk and not be devastated by a total flop.

I think it is far more likely that USACS will continue to grow and sell to another large and successful Corporate Medical Group (at which point we would get our shares back) than go bankrupt and leave is with nothing.e

My main concern by far is CrazyRoad's first point above. I actually called our business office to ask them how I would be able to get the money back from this investment and they couldn't give me a satisfactory answer. The best thing they could offer was that when I leave the group that the owners have the option of buying my shares. They also said that occasionally the groups financial board will determine what the value of the shares are and that they might allow us to sell our shares at that point.

I am young and recently out of residency so I have the luxury of being able to afford a higher risk and won't need this money for a long time but I don't like that I would have no control over it if I decide in the future that I want to go a different direction or I start to disagree with the USAC model and want to get out.

[ShahMD]

Just found out I'm not an accredited investor yet
Graduated residency in June 2015. That's a disappointment.

[Hatton]

I have had until recently an investment in a local hospital owned by CHS.  The investment paid a quarterly dividend based on how the hospital was doing financially and I made a profit (LTCG) when the hospital itself bought back the shares.  The problem is liquidity.  Non publicly traded shares are hard to sell if you need money for some emergency.  You need to ask what happens if you die or become disabled.  What if you take another job or lose hospital privileges.  Can you sell them to other ER docs or the company? Also non-publically traded shares make calculating your net worth inaccurate.  It could me a good deal if you have a nice emergency fund, like your job, and you keep the investment to a small percentage of your overall net worth. Also I would not finance the investment.

[The White Coat Investor]

Western wolf wrote:

I work in an Emergency Department that is run by US Acute Care Solutions (formerly EMP).  They are offering employee physicians the opportunity to purchase shares in their company.  I know WCI’s take on purchasing individual stock is not favorable, however, I am curious if this a different situation since it would not be a publicly traded stock and a unique opportunity that could be very profitable.  The company seems to be doing great right now as they follow the mainstream model of buying out smaller ED’s all over the country and forcing their docs to work in corporate medical groups.  I’m tempted to treat this like a riskier investment and purchase some shares.  Any suggestions or advice would be appreciated.

 

Thanks!

Click to expand...

Might as well buy some shares of TeamHealth (just bought by Blackrock) and EmCare while you're at it.

I like the concept of owning my own company, but buying shares in a company you work for but have no control over its decisions is not the same thing. The general advice for that type of situation is don't do it. You don't want your investments to tank the same time you lose your job. But even if USACS goes under, you're just going to work for whoever gets the new contract, so that's not that huge a deal. So I'd stick with the 5% "play money" limit, i.e. no more than 5% of your portfolio into it. I probably wouldn't put any though, or if someone was watching, just a token amount.

Edit: I just realized USACS stock isn't publicly traded. So now you've got a liquidity issue too. You need to evaluate this like any other private investment opportunity- read all the fine print, understand the risks, keep it to a low percentage of your portfolio etc. But many of these opportunities work out well. We can buy syndicated shares of our hospital, for instance, and returns have been very good.

[G]

Western wolf wrote:

Thanks everyone for the great comments. Personally I feel satisfied with the direction this group is going and their reason for wanting more money. I can understand that this is a risky investment and that I could lose everything. If I use a small percentage of my portfolio as suggested above I think I could afford the risk and not be devastated by a total flop.

I think it is far more likely that USACS will continue to grow and sell to another large and successful Corporate Medical Group (at which point we would get our shares back) than go bankrupt and leave is with nothing.e

My main concern by far is CrazyRoad’s first point above. I actually called our business office to ask them how I would be able to get the money back from this investment and they couldn’t give me a satisfactory answer. The best thing they could offer was that when I leave the group that the owners have the option of buying my shares. They also said that occasionally the groups financial board will determine what the value of the shares are and that they might allow us to sell our shares at that point.

I am young and recently out of residency so I have the luxury of being able to afford a higher risk and won’t need this money for a long time but I don’t like that I would have no control over it if I decide in the future that I want to go a different direction or I start to disagree with the USAC model and want to get out.

Click to expand...

As an outsider looking in, it looks like EMP has morphed into the thing they always railed against: big corporate medicine.  The real winners are the "founding partners" who are making out like Elon Musk on Paypal or an NFL owner getting a stadium from tax revenue (hello, Las Vegas).  I mean, it's like the guys who gave you a copy of "The Rape of Emergency Medicine" are now the guys raping emergency medicine.  I digress.  There are probably riskier bets with less reward.  It'd be really interesting if you actually get paid for a share; likely the best outcome is going public or getting bought by TMH where they give you 10x/earnings divided by number of shares--that is the payday.  If you are in a financial position to consider it "money spent" as opposed to "an investment"--go for it!

[Ben Gold]

Late to the game replying to this thread but if anyone is still looking into this I can give you personal perspective. Former employee of EMP/USACS. Was fortunate to have choosen to buy a few shares early on in my time with them Sadly, was early out of residency and didn't have much to invest outside of my normal/traditional retirement savings. There is a definite liquidity issue as you can only sell at times of "stock offerings" which are roughly yearly, but not definite or standardize, so would not use this for a short term or fixed term investment. With that said, the investment has been VERY profitable, far outpacing the market and my other investments. While previous performance of course does not guarantee future gains, knowing the company and the market well, I see no reason it will not continue to see at least positive gains.

[The White Coat Investor]

Guess where those profits come from....

Here's a good example:

https://www.ohio.com/akron/business/summa-health-loses-accreditation-for-emergency-medicine-residency-program

http://gruntdoc.com/2017/01/the-rape-of-emergency-medicine-2017-version.html

Honestly, I hope EmCare, Team Health, and USACS all turn out to be terrible investments. I think their business model is terrible for docs, hospitals, and patients. There's a reason there are laws against the corporate practice of medicine and its unfortunate that these companies and their attorneys have found ways around those laws.

On a positive note, EVHC (EmCare) stock is down 64% over the last year. So maybe there is hope.