Medical Staffing Network Holdings, Inc.

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Medical Staffing Network Holdings, Inc.

901 Yamato Road, Suite 110
Boca Raton, Florida 33431
U.S.A .
Telephone: (561) 322-1300
Toll Free: (877) 676-8326
Fax: (561) 322-1200
Web site: http://www.msnhealth.com

Public Company
Incorporated: 1998
Employees: 29,100
Sales: $385.5 million (2006)
Stock Exchanges: New York
Ticker Symbol: MRN
NAIC: 561320 Temporary Help Services

COMPANY FOUNDING: 1998

PUBLIC OFFERING: 2002

ADAMSON CONSIDERS STEPPING DOWN IN 2004

PRINCIPAL SUBSIDIARIES

PRINCIPAL COMPETITORS

COMPANY FOUNDING: 1998

Medical Staffing was incorporated in Delaware in March 1998, cofounded by Robert J. Adamson, Kevin S. Little, and Patricia G. Donohoe. Named the company’s president and chief executive officer was Adamson, who came out of the computer industry to assume the presidency of StarMed Staffs, L.P., a unit of Medical Resources, Inc. Just prior to the creation of Medical Staffing, Adamson served as the chief operating officer and chief financial officer of TravelPro USA, a luggage company. Little had also been employed at Medical Resources, serving as corporate controller. He went on to cofound TBM Staffing, Inc., and then became president of Southeast Staffing Partners, Inc., a Florida corporation formed in June 1997. Through a March 1998 merger, Southeast Staffing became the foundation for Medical Staffing, established in that same month. Little became its chief financial officer. The third cofounder was Donohoe, a registered nurse who served as executive vice-president of business development and eventually chief nursing officer. She had cofounded TBM with Little and shared the presidency with him. In addition, she had previously worked with Adamson as regional director of StarMed Staffing. The founders had little difficulty in finding investors. Hoping to net about $5 million in seed money, they raised $11.5 million, most of which came from Fleet Equity Partners and Piper Jaffray Ventures.

The reasons why the temporary medical staffing field was so attractive to the company’s founders and investors were manifold. In the 1990s an acute shortage of nurses developed, creating a tremendous demand for per diem nurses to fill in the gaps at hospitals and other healthcare facilities. These institutions were also looking for ways to contain overhead, and the use of temps freed them from the extra costs that came with permanent employees, including benefits that ranged from pension contributions to vacation time and severance pay. The demand for nurses was only going to increase because of the aging baby boom population. Moreover, the company looked to take advantage of changes to the nursing population. The average age of working nurses was the mid-40s. Many of them had another wage earner in the household and while they were not able to retire, or were not interested in retirement, they could afford to work part time. There were also a large number of nurses who had left the profession after years of grueling work but were ready to return on a temporary basis. Hence, there was a pool of qualified nurses from which to draw.

Establishing its headquarters in Boca Raton, Medical Staffing started out with a single office to serve south Florida, which was an ideal market for a temporary nursing operation. Because of a swelling of the population from northern “snowbirds” during the winter months, there was a fluctuating demand for nurses at area hospitals. Rather than maintain a large permanent staff at great expense, hospitals preferred to take on temporary staff from December to April.

During the seven months Southeast Staffing was in operation in 1997, revenues totaled $2.7 million. That amount grew to $33.1 million in 1998 when Medical Staffing took over the operation and began to expand, both internally and externally. The company began opening what it called de novo (Latin for “from the beginning”) branches, and in 1998 made a pair of acquisitions, purchasing MPS Healthcare, Inc., and Staff Relief Inc. By the end of the year, Medical Staffing operated 26 offices.

Medical Staffing became even more aggressive on the acquisition front the following year, completing four deals. In June 1999 it added the assets of Pediatric Services of America, Inc., at a cost of $1.8 million in cash. Two weeks later Z Healthcare Enterprises, Inc., another temporary healthcare staffing agency, was brought into the fold for about $400,000. In November two more purchases were completed, MTS Staffing Resource, Inc., for $16.2 million, and Medical Office Services, Inc., at a cost of $1.3 million in cash. While these operations made a contribution to the balance sheet, Medical Staffing’s dramatic increase in revenues to $96.5 million in 1999 was mostly a function of the de novo branches opened in 1998 hitting their stride. These organic operations usually offered sufficient operational cash flow to pay debt interest within six months. The company also turned profitable in 1999, netting nearly $2.4 million.

Medical Staffing kept up the pace in 2000, as the company continued to open new locations and purchase existing ones, spreading across the country and expanding the number of per diem branches in the network from 34 to 74, making Medical Staffing the United States’ largest healthcare per diem staffing company. In February the company paid $1 million in cash and a note for the medical staffing business of Medix Resources, a Colorado-based temporary healthcare staffing and computer services company. With this acquisition, Medical Staffing picked up operations in Denver, Colorado, and Houston and San Antonio, Texas. Next, in March 2000, Medical Staffing completed another deal, adding Best Nursing for about $1.5 million. Virtually all of the assets of Michigan-based American Anesthesia Services, Inc., were purchased for $5.6 million in October 2000. Two days later a deal was completed to add Nursing Care USA of Rhode Island for $1 million, followed a month later by the $12.9 million acquisition of Pennsylvania-based Health Med, Inc. When 2000 came to a close, revenues almost doubled to $182 million, while net income improved to $3.5 million.

COMPANY PERSPECTIVES

As a national leader in supplemental healthcare staffing since 1998, Medical Staffing Network offers a variety of excellent career opportunities for healthcare professionals, as well as complete staffing solutions for healthcare facilities.

Despite a floundering economy and the terrorist attacks on the United States on September 11, 2001, that hurt Florida tourism, Medical Staffing continued to add offices and expand to about 40 states by the end of 2001, when the number of per diem offices increased to 136. Most of the new offices were start-ups. The only acquisition of the year was Yorktown Heights, New York-based Excel Staffing Services Inc. For the year, revenues improved to $338.4 million, but Medical Staffing posted a $3.1 million net loss. In October 2001 the company was recapitalized when an investment group led by Warburg Pincus acquired a controlling interest. In the process Medical Staffing took on $165 million in debt, although $83 million of that was used to pay off an existing debt load.

PUBLIC OFFERING: 2002

In 2002 Medical Staffing was taken public at $19 per share. With Lehman Brothers serving as the lead underwriter, the initial public offering (IPO) of stock was completed on April 23, 2002, netting Medical Staffing $156.3 million. The proceeds were used to trim the company’s indebtedness. Medical Staff was able to resume its aggressive acquisition program, completing several deals before the end of the year. In July it acquired Medical Staffing Services, Inc.; STAT Medical Services, Inc.; and Pro Med, Inc. A month later Pharm-staff, Ltd., was added at a cost of $8.5 million. Then in October 2002 B&G Nurse Registry was bought for $8.6 million, followed by the $1.3 million purchase of Clinical Resource Services Inc. in November. Rounding out the year was the $5.5 million purchase of Travel Nurse International. For the year 2002 revenues increased to $478.8 million, netting $7.6 million.

Medical Staffing’s sharp rate of growth tailed off in 2003, and the company’s stock, which had soared after the IPO, began to flounder. A nursing shortage remained, but other conditions conspired to hurt the company. According to a June 2003 article in the Palm Beach Post, “Medical Staffing came plummeting back to Earth during the past eight months, not because the nursing shortage eased, but because increasingly cost-conscious hospitals have decided to do everything they can to avoid paying the higher costs to hire temporary staff. Hospitals are requiring their own nurses to work overtime, increasing nurse-patient ratios and offering $10,000 bonuses to attract and retain nurses.”

ADAMSON CONSIDERS STEPPING DOWN IN 2004

While the company’s revenues showed modest improvement in 2003, approaching $513 million, and net income receded only to $5 million, the impacts of these market changes were more pronounced in 2004 as demand continued to be weak. Revenues fell to $417 million and the company recorded a net loss of $1.3 million. Adamson considered turning over his chief executive responsibilities to someone else, but in the end was convinced by the board to remain as both chairman and CEO.

Poor demand for per diem nurses continued to trouble Medical Staffing in 2005. The allied and travel divisions performed well, but they were unable to make up the shortfall from the company’s main division. Revenues slipped to $402.5 million for the year, resulting in a net loss of about $800,000. The company focused on improving profitability in 2006 by restructuring its operations. In addition, there were changes in the administrative ranks. The chief financial officer left, and Kevin Little reassumed the post. He also continued to act as Medical Staffing’s president. Cost-cutting measures saved the company more than $6 million in annual operating expenses and helped offset some of the goodwill impairment charges the company took in 2006 in order to clean up its balance sheet. Nevertheless, revenues continued to dip, falling to less than $385.5 million, and the company took a net loss of nearly $27 million. The onetime charges clouded the picture, though. Without them, Medical Staffing in the final three quarters would have posted the best operating results in almost three years.

KEY DATES

1997:: Predecessor company, Southeast Staffing Partners, Inc., is launched.
1998:: Medical Staffing Network is founded in Boca Raton, Florida.
2001:: Company is recapitalized.
2002:: Initial public offering of stock is completed.
2007:: Agreement is reached to acquire InteliStaf Holdings.

Despite a difficult stretch, Medical Staff could take heart that underlying conditions favored its long-term prospects. The population was not getting any younger, and the need for nurses and other healthcare professionals would continue to increase. The vacancy rate for registered nurses remained extremely high at 8.5 percent, and about 85 percent of hospitals reported a shortage of registered nurses. Moreover, nurse turnover rates continued to grow and more than half of surveyed nurses said they planned to retire within the next 13 years. There was also a question of how long hospitals could continue to operate with a limited number of nurses, given the strong correlation between nursing shortages and the quality of care given to patients. Medical Staffing was not content to merely tighten its belt and wait out lean times, however. In May 2007 it announced a major acquisition, agreeing to pay $92 million for Oakbrook Terrace, Illinois-based InteliStaf Holdings, Inc., the second largest provider of per diem nurses, operating almost 70 offices.

Ed Dinger

PRINCIPAL SUBSIDIARIES

Medical Staffing Holdings, LLC; Medical Staffing Network, Inc.; MSN-Illinois Holdings, Inc.; Medical Staffing Network of Illinois, LLC; Medical Staffing Network Assets, LLC.