Shares of troubled revenue-cycle management firm Accretive Health spiked as much as 50% Tuesday after the firm reached an equity and contract agreement with Ascension Health.
Ascension, whose hospitals account for a significant portion of Accretive's revenue, sought to buy the Chicago-based company last summer. However, Accretive rejected the offer, deeming it too low. Ascension also told Accretive that it did not intend to renew its professional services agreement when it expires in August 2017.
Under the terms of Tuesday's deal, however, Ascension agreed to use Accretive as its sole revenue-cycle management provider for a 10-year term. The St. Louis-based system, one of the largest in the country, also formed an investment vehicle with TowerBrook Capital Partners that will make a $200 million investment in Accretive.
The investment will allow Ascension and TowerBrook to purchase convertible preferred shares at $2.50 each, representing 44% of Accretive's outstanding shares. The partners also will receive warrants that will allow them to purchase another 60 million shares at a price of $3.50 with a 10-year term.
The transaction is expected to be completed in the first quarter of 2016. The investment partners will have the right to nominate five members to a nine-member Accretive board.
Ascension was Accretive's first client and held an 11% stake in the company when it launched its initial public offering in 2010.
In addition to equity, the agreement adds $8 billion in new net patient revenue, a 47% increase over Accretive's current net patient revenue, as Ascension transitions its revenue-cycle management business over to Accretive. It also more than doubles the amount of revenue currently coming from Ascension.
Accretive also will handle all physician advisory services for the 129-hospital system.
The company will hire additional staff to service the Ascension business, including some of Ascension's revenue-cycle employees. Accretive CEO Dr. Emad Rizk called the agreement “a new chapter for Accretive Health” and a “validation of our revenue-cycle capabilities.”
Shares of Accretive traded as high as $3 on Tuesday after closing Monday at $2. Accretive's shares were trading above $5 when Ascension made its initial offer.
The deal also requires Accretive to make a meaningful effort to become listed once again on a major stock exchange such as Nasdaq or the New York Stock Exchange. The company was delisted in March 2014 after it encountered delays while restating past financial results, a process that affected the release of it 2013 results.
Shares must trade at a minimum of $4 in order to be listed on the NYSE.
Accretive has faced a number of financial setbacks.
The company posted a net loss of $33 million on $15.8 million in revenue for the third quarter of 2015, compared with net income of $9.6 million on revenue of $90.7 million in the same period last year.
Hospitals affiliated with Ascension accounted for 12% of Accretive's net services revenue in 2014, and 76% of its deferred customer billings, according to the third quarter financial filing.
Accretive said it will use the proceeds of Ascension's investment to fund infrastructure investments and growth initiatives, such as acquisitions that will add scale or new technologies. Separately, it expects to add another one to two non-Ascension clients per year.
The deal also marks the conclusion of Accretive's strategic review process, which the company launched after turning down Ascension's original offer. Accretive considered a “large and diverse group” of strategic and financial partners, Rizk said, before unanimously agreeing to accept the current deal with Ascension.
Unlike Ascension's initial offer, which would have made Accretive a for-profit subsidiary of the health system, the current deal allows Accretive to remain an independent, publicly traded company.