Blackstone Group LP (BX), the world’s biggest private-equity firm, agreed to buy Emdeon Inc. (EM) for about $3 billion, taking the health-care billing firm private again after two years as a public company.
Emdeon shareholders will receive a cash payment of $19 a share, the Nashville, Tennessee-based software maker said in a statement today. The deal would give investors a 44 percent premium over the closing price for Emdeon stock on July 26, the day before news broke that the two sides were talking.
Emdeon went public in 2009 and won’t provide New York-based Blackstone a lot of waste to easily cut, said Bret D. Jones, an Oppenheimer & Co. analyst in New York. Instead, the equity firm probably aims to expand Emdeon’s share of the growing market for companies that help doctors, hospitals and insurers exchange electronic medical records, Jones said.
“Emdeon was private only three years ago, so it’s hard to believe that their cost structure could be that inflated,” he said by telephone. “That tells me they’re going to have to do something to increase revenues, and the strategy to do that is probably going to be to take over the clinical-data market.”
The software maker’s biggest shareholders, private-equity firms Hellman & Friedman LLC and General Atlantic LLC, have agreed to the acquisition, the statement said. Hellman & Friedman, based in San Francisco, will maintain a “significant minority equity interest” in the company, it said.
Blackstone and Hellman & Friedman “each have an in-depth understanding of our business and industry, and will be tremendous partners as we continue to pursue our strategy of making health-care efficient,” George Lazenby, Emdeon’s chief executive officer, said in the statement. “We are looking forward to building upon our leadership position in health-care information technology and services.”
Emdeon rose $2.10, or 13 percent, to $18.35 at 4:01 p.m. in New York Stock Exchange composite trading. The shares have risen 36 percent this year.
Emdeon is the leading provider of financial clearinghouse services to process claims for doctors, hospitals and insurers, said Oppenheimer’s Jones. Sales in that market have slowed the past two years as the weak economy and higher copays cut into Americans’ use of medical services, he said.
The company has less of a presence in transmitting medical data, an area likely to become a “multibillion-dollar market,” boosted by government stimulus spending to encourage the use of electronic health records, Jones said.
Clinical Data Market
For Blackstone, “the expectation is if they can take over the clinical-data exchange market, they can take Emdeon public again in a few years at a better price,” he said.
There have been 297 announced or completed acquisitions of medical software companies in the past five years, with an average deal size of $127.6 million and a typical premium of 45 percent, according to data compiled by Bloomberg. The biggest was the $5.06 billion takeover of IMS Health Inc., a collector of prescription-drug data, by a private-equity consortium in 2009.
The acquisition would be one of Blackstone’s biggest corporate buyouts since the credit crisis triggered partly by the collapse of Lehman Brothers Holdings Inc. in 2008. It’s among the largest public-to-private deals announced by buyout firms this year.
Kinetic Concepts Inc. (KCI), a maker of wound-care products and hospital beds, agreed last month to be bought by investors including Apax Partners LLP for $4.98 billion in cash. If approved by shareholders, it would be the largest corporate leveraged buyout since the crisis.
Blackstone is making the purchase through its latest buyout fund, for which it has gathered about $16 billion in commitments from pensions, endowments and sovereign wealth funds. The New York-based firm is the world’s largest private- equity company by assets, factoring in its real estate, hedge fund and credit investing businesses.
Blackstone in October 2008 completed the purchase of Apria Healthcare Group, a provider of home medical equipment, for $1.7 billion.
Morgan Stanley (MS) acted as lead financial adviser and UBS Investment Bank was co-financial adviser to Emdeon’s board, according to the company’s statement. Paul, Weiss, Rifkind, Wharton & Garrison LLP was Emdeon’s legal adviser and King & Spalding LLP acted as legal adviser to its outside directors.
Blackstone Advisory Partners LP, Banc of America Merrill Lynch, Barclays Capital and Citigroup Inc. acted as financial advisers to Blackstone and have committed financing to the deal, the statement said. Ropes & Gray LLP acted as legal adviser to Blackstone.
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