This IPO Is Sluggish

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Compared with the crazy IPO by lithium-ion battery maker A123 Systems (Nasdaq: AONE) last Thursday, Select Medical Holdings' (NYSE: SEM) IPO a day later was downright sick.

Shares of the manager of specialty hospitals and rehabilitation centers debuted at $10 each, which was below the expected $11-to-$13 range. The company also sold about 10% fewer shares than originally planned. At the end of the first day of trading, Select Medical was up, but only $0.09.

Select Medical is one of those public-private-public deals. Having once been a public company, it was taken private in 2005 for about $2.3 billion. The private equity firm that bought the company isn't cashing out on the IPO, though. The shares sold on Friday were all from Select Medical, not the private equity owners.

The company plans to use the $300 million or so in proceeds to pay down debt. It'll help a little, but the company will still be quite leveraged, having had nearly $1.7 billion in debt at the end of June.

Fellow hospital operators HealthSouth (NYSE: HLS) and Kindred Healthcare (NYSE: KND) have been on a tear this year, up more than 30% -- roughly double the rise in the S&P 500.

Whether Select Medical can join the party likely depends on how health-care reform plays out in Congress. If Medicare reimbursement rates get cut, that would hurt Select Medical, which counts on the government program for nearly half of its revenue. While the government is moving toward lowering health-care costs, I'm inclined to think that Congress will be careful about cutting Medicare services, given the large voting block of seniors.

What do you think? Help our supercomputer figure out if Select Medical deserves an outperform or underperform rating in Motley Fool CAPS.