“It's not a big surprise,” said David Francis, managing director at the JAAG Group, an investment advisory and research firm. “It was a deal that was highly anticipated by the industry.”
Premier's core business has long been as a GPO, and it remains the biggest one in healthcare. But the company has moved into other promising areas such as quality improvement and population health management. It also has pharmacy benefit and insurance offerings.
“There's a lot of focus among investors on the data and analytics business,” Francis said. He added, however, that it will take time to fully develop. On the other hand, “the GPO business is pretty mature—it's a highly competitive space,” he said. “It's a less sexy business, but it's a steady and predictable business.”
Bret Jones, an analyst at Oppenheimer who follows Premier competitor MedAssets (the only other publicly traded healthcare GPO), called the GPO space the “ugly sister,” pointing for instance to criticism from analysts and shareholders that Alpharetta, Ga.-based MedAssets overpaid in its $850 million deal for GPO Broadlane in 2010. “That's not the business they want to be in,” he said.
In its IPO prospectus, Premier said supply-chain services accounted for 76% of its fiscal 2013 net revenue, or $664.1 million, growing 12%. Performance services brought in the remaining $205.2 million, with 16% year-over-year growth.
“We believe the future for healthcare providers in the United States will require transformational change, due to intense cost pressures, a shifting competitive landscape, a changing regulatory environment, the evolving use of data and analytics and the transition to a fundamentally different payment model,” the company said in an Aug. 26 regulatory filing laying the groundwork for the IPO.
The IPO steers nearly 20% of the proceeds, after underwriters' standard 6% take, to the company for working capital.
About three-quarters will go to Premier's 181 member-owner hospitals in the form of stock that can be sold during the next seven years.
Premier had suggested a price range of $23 to $26 in a Sept. 16 filing with the Securities and Exchange Commission. The company said it expected to raise about $648.3 million, or $745.6 million if underwriters exercise their overallotment option. Underwriters have a 30-day option to buy another 4.2 million shares at the IPO price.
New investors were issued Class A shares, while Premier's hospital owners received Class B shares. Under a new organizational structure, Premier's owners will retain 80% of the voting power in the company. Class A shareholders will have about 20% of the voting power.
Proceeds from the IPO will be used for working capital and general corporate purposes, including potential acquisitions and unspecified development opportunities, according to the IPO prospectus.