The "roll up" business model, whether it be accounting or medical, generally has very serious flaws, hence its frequent failure.
For VGH, the business model is based upon buying an ophthalmologists practice and "goodwill". The ophthalmologist is given a large amount of up front cash at an exaggerated multiple with fantastic tax advantages, shares at a discounted price (which dilutes other holders), a place and equipment to perform their work, and a wage (often 50% of what they would normally receive if working outside of VGH) and a term of duty of (say) 5 years.
In return VGH receives the billings of the ophthalmologist, must run his practice, supply all the equipment, run the gauntlet of random government intervention, put up with greedy employees who in the end have them over a barrel and sit on the board and have a major shareholding. They do not really receive any goodwill and really just receive 4 or 5 years of billings, yet they are able to value the business as if they receive multiple years of good will. The banks have lent them 100 million for this privilege at a decent old rate.
The bomb has now been constructed!
In the meantime the VGH board has 5 or 6 years to put together a doctor remuneration model to satisfy its workers. It does not communicate this issue well to its shareholders. It changes its leaders constantly, yet maintains its talentless chairman throughout.
The accelerant has now been applied to the bomb!!
A couple of ophthalmologists do not re-sign and there are a series of court cases. Oh No!!!
Lets move forward to today. There are 2 key players
1. VGH -market cap = 10 mill -debt = 100 mill -board/ management = poor -instos = bye-bye -business model= poor -ophthalmologists = hungry and wallet amnesia has set in BUT - VGH own the equipment to allow the ophthalmologists to practice
2. Ophthalmologists -do not like being a salaried employee in a business that is a walking and breathing carcus when they could be earning twice as much, working for themselves across the road -an ego the size of our great sunburnt land of opportunity -the shares that they have not already been allowed to dump are worth excrement
For a new ophthalmologist to sign on or an existing worker to re- sign would be just an amazing occurrence, one would think.
Why not just sit back and wait for the last breath to take place then make a nice little offer for the equipment that you need to practice over the road? Sounds like a good idea. Then put the dreadful but highly lucrative period behind them.
In terms of investing in VGH, an old Chinese proverb comes to mind- picking at bottom leads to stinky finger.
In terms of speculating on VGH, my local has a good keno operation going on.
VGH Price at posting:
14.5¢ Sentiment: None Disclosure: Not Held
