Some entrepreneurs favor keeping their companies private. For example, John Erickson, founder and CEO of Baltimore-based Erickson Retirement Communities (ERC), is committed to growing his business without going public. There are 19 Erickson campuses in 11 states, with 21,000 residents. ERC’s business plan involves adding sites, anticipating growth to 55,000 residents in five years. Such steady expansion gobbles up capital, but Erickson is adamant about staying private. On going public he says: “I consider it whenever I need capital, but it’s hard to keep public markets happy. If your business slows down for any reason, your stock tanks and the market will punish you harshly. I will not have stock analysts pressuring me about how to run and grow my business.”
Erickson admits the competing demands of raising capital and keeping the company private aren’t easy to reconcile. “We go to midsized and large banks and [real estate investment trusts], get letters of credit, tax bonds, debt financing, mezzanine financing, etc.,” he says. He considers that others in his industry, Sunrise Senior Living (SRZ) and Brookdale Senior Living (BKD) that have gone public show the industry’s strength. “Multiple sources of capitalization in an industry provide greater options for all,” he adds.
That said, Erickson intends to resist any temptation to go public because “I must have the flexibility to implement our five-year plan correctly. If I want to invest $30 million in a medical group or hire seven doctors at $150,000 a pop, I don’t have to answer to some 30-year-old stock analyst who doesn’t like that.”
As for IPC’s public offering, Erickson says the first company to do so in an industry opens new avenues for raising capital in the public arena. “Dr. Singer’s pushing the envelope for hospital medicine, and if he can tolerate the pressure of the market—even when the strings are very tight—that’s great,” he emphasizes.
Commenting on the legal and governance issues of a public offering, Peter Olberg, corporate and finance partner at Manhattan-based law firm of Manatt, Philips and Philips says IPC’s being the first publicly traded hospitalist medicine company is a sound way to raise capital and isn’t risky in terms of disclosure. However, a specialty care provider like IPC can “become a victim of its own success. Public payers can say reimbursement is too high and cut it based on the leader’s financial performance.”
SHM President Patrick Cawley, MD, MBA, calls IPC’s public offering a major milestone because it demonstrates the maturity of the hospitalist movement. He expects IPC to use the infusion of capital to step up physician hiring, acquire more groups, and improve its proprietary IT infrastructure by refining its tools to further link outcomes and performance.
“IPC’s emphasis on quality outcomes is clearly where medicine is going,” Dr. Cawley says. And, “Putting pressure on hospitalists to be more productive has a huge potential in helping hospital medicine get more efficient by seeing more patients.”
To put the IPC public offering in perspective Dr. Cawley captures Dr. Singer’s vision. “To run a public company, you focus beyond daily stock prices and on the intermediate and short-term. What Wall Street thinks about your business matters. Our product [hospital medicine] has a great future, and I applaud Adam Singer for taking this step.”