A private equity firm will acquire MedAssets and split the company in two, absorbing its revenue-cycle management business and selling its group purchasing and consulting business to the VHA-UHC Alliance, which is already one of the biggest GPO players in healthcare.
Pamplona Capital Management will purchase Alpharetta, Ga.-based MedAssets for $2.7 billion, or $31.35 per share, in cash. The firm will sell off the GPO and performance-improvement and Sg2 consulting businesses to the VHA-UHC Alliance and combine the remaining revenue-cycle management business with its own, called Precyse.
The financial terms of the deal with VHA-UHC were not disclosed.
The transaction is expected to close in the first quarter of 2016, pending regulatory approvals. MedAssets would then be completely out of the GPO business and VHA-UHC would more than double its purchasing volume.
VHA-UHC, itself the product of a merger this year, handles more than $50 billion in purchasing volume with more than 5,200 health system members and affiliates, including most of the nation's academic medical centers, as well as 118,000 non-acute customers. MedAssets serves about 3,300 hospitals and 123,000 non-acute providers, representing over $59 billion in total spending. The companies have a number of overlapping customers.
MedAssets referred questions to Dr. Jeremy Gelber, a partner at Pamplona who moved the firm into the healthcare space when he was hired in 2013. Gelber said MedAssets' supply chain business is “more valuable in the hands of our partners at VHA-UHC Alliance than in our hands.”
VHA-UHC CEO Curt Nonomaque said in an interview that the two companies have much in common, including robust pharmacy programs, but also bring different strengths to the table.
MedAssets, for example, doesn't have a private drug label or risk-based contracts, and Novation does, said Jody Hatcher, VHA-UHC's president of offering delivery and operations. MedAssets, meanwhile, has “real strength in capital equipment and purchased services, which I think will be very complementary.”
MedAssets' revenue-cycle management business alone is estimated to manage over $450 billion in gross patient revenue and serves over 2,700 providers. Pamplona and VHA-UHC have agreed to work together on certain offerings to serve mutual customers, according to a news release.
After the deal, the combined revenue-cycle management company would be 45% technology, 45% services and 10% workforce development, through Precyse's partnership with HealthStream, which develops software for provider education. Gelber said. MedAssets has strong front-end systems like its patient access portal and good back-end systems like its charge capture, denials management and receivables functions, but can benefit from Precyse's offerings in health information management, coding, case management, transcription and clinical documentation improvement.
“When you put that whole thing together, you're giving the CFO accountability across the revenue cycle,” Gelber said. “Marrying in clinical and financial information, that's really important in the value-based world.”
Executives at VHA-UHC and Pamplona said it's too early to know what will happen to the MedAssets brand or the company's management teams. The company had just appointed Bharat Sundaram as president of its spend and clinical resource management segment in September.
Due to the acquisition announcement, MedAssets released its earnings Monday morning instead of after markets closed, as previously planned. It also canceled its scheduled conference call related to the financial results, and said it won't conduct a call about earnings or the acquisition.
The company reported $190 million in revenue for the third quarter, up 8.1% from $176 million during the same period the year before, thanks to strong growth in spend and clinical resource management. Profits dropped sharply to $8.4 million, down 66% from $24.5 million during last year's third quarter.
Income took a hit from a $10.3 million one-time impairment charge due to the previously announced elimination of certain revenue-cycle management products, as well as increased restructuring costs of $5 million related to the company's ongoing expense reduction program.
"Over the last year, our progress captured the attention of outside parties, and we received a number of unsolicited inquiries expressing interest in acquiring MedAssets," MedAssets CEO R. Halsey Wise said in a statement. "Our board of directors and executive leadership team conducted a thorough review of strategic alternatives and, after careful consideration, we determined an acquisition by Pamplona is the best course of action for our shareholders, customers and employees."
Morgan Stanley, Barclays, Macquarie Group and GCI have committed financing for the deal.
MedAssets launched its latest restructuring effort in September in response to several quarters of falling profits. The initiative was expected to save MedAssets $21 million annually by cutting 180 full-time jobs, or about 5% of its workforce, in addition to closing an office and cutting non-employee expenses. Restructuring costs are mainly related to termination benefits.
