The Health Care M&A Monthly: e-Health Posts Strong Numbers--

Eleven Deals Announced Worth $4.0 Billion

 
Conventional wisdom tells us that the summer is generally not a good time for tech. Investors flee the sector, stashing their capital in money market funds, until the latest game-changing gadgets and systems are debuted after Labor Day. Anyone following the Nasdaq’s downward spiral this summer would easily recognize this scenario. However, those taking a longer view did not abandon the M&A market for e-Health this summer. August posted a total of 11 deals worth a combined $4.0 billion, accounting for 42% of the $9.5 billion spent in the entire health care M&A market to finance 67 deals.
The largest deal of August for both e-Health and the entire health care industry is The Blackstone Group’s (NYSE: BX) proposed $3.0 billion leveraged buy-out of Emdeon, Inc. (NYSE: EM). This transaction will take EM private again after just two years as a public company.

Based in Nashville, Tennessee, Emdeon provides revenue and payment cycle management solutions that connect payers, providers and patients; the company’s software is used to manage patient lists and claims, among other functions.  On a trailing 12-month basis, it generated revenue of $1.08 billion, EBITDA of $253.0 million and net income of $24.0 million. While the deal requires shareholder approval, EM’s biggest shareholders, General Atlantic and Hellman & Friedman, who jointly own 72% of the company, have agreed to vote their shares; Hellman & Friedman would retain a stake in the company.

Under terms of the deal, private equity firm Blackstone is offering $19.00 per share. This represents a 17% premium to the stock’s prior-day price. It is 44% higher than the closing price on July 26, the day before the news was leaked that Blackstone was in advanced negotiations with EM. As for acquisition multiples, the deal is valued at 2.8x revenue and 11.9x EBITDA. Blackstone plans to back its LBO with about $2.0 billion in debt: Bank of America, Barclays and Citigroup have each committed a third of the debt. Blackstone will invest about $870.0 million of equity in the buyout while existing shareholder Hellman & Friedman will roll over $330.0 million of equity. Although EM will certainly accrue certain operational benefits that come with being private, the deal appears to be motivated by General Atlantic’s desire to cash in on its investment. In 2006, General Atlantic bought a 52% stake in the company for $1.2 billion, reducing it to 42% after EM’s IPO; it now expects to see what it considers “a strong return.” Morgan Stanley and UBS provided EM with financial advice on this deal.

In a bid to expand its information systems and technology segment, General Dynamics (NYSE: GD) is paying $960.0 million in cash to buy Vangent Holding from Veritas Capital. Based in Arlington, Virginia, Vangent is a provider of health care information technology and business systems to such federal agencies as the Departments of Health and Human Services, Education, Labor, State and Defense. For the first quarter of 2011, Vangent generated revenue of $175.8 million. The deal is thus valued at approximately 1.4x annualized revenue. Veritas Capital originally acquired Vangent, then known as Pearson Government Solutions, from Pearson PLC for $600.0 million in 2007, so we presume it’s getting a juicy return on its investment.

Disease management company Healthways (NASDAQ: HWAY) is paying $28.7 million to acquire Navvis & Company, a management consulting firm based in St. Louis and specializing in competitive market strategy in the health services industry...Want to read more? Click here for a free trial to The Health Care M&A Monthly and download the current issue today