Universal American to Gain Medicare Patients in Deal for APS Healthcare

Universal American Corp. (UAM), an insurer specializing in Medicare coverage, agreed to buy closely held APS Healthcare Inc. for $227.5 million to expand services for patients of government health programs.

APS Healthcare (APSH) provides disease-management, behavioral health and other programs, the Rye Brook, New York-based insurer said today in a statement. The purchase includes $147.5 million in cash to retire APS Healthcare’s debt and liabilities and $80 million in Universal American stock, the company said.

The deal increases Universal American’s ability to win business serving patients in government-funded Medicare and Medicaid programs, said Dave Shove, a BMO Capital Markets analyst in New York, in a note to clients. It also may lessen the chances that the company sells itself to a larger insurer, he said. Universal American shares fell 19 percent, their biggest one-day drop in eight months.

“While some holders of Universal American may have viewed the company as a take-out target, today’s deal could mean a longer runway for that type of endgame,” Shove wrote. “We still believe that a large-cap player will ultimately acquire Universal American, but 2013 and beyond seems more likely.”

Universal American declined $2.61 to $10.95 at 4 p.m. New York time.

Universal American said the acquisition is expected to add to earnings in 2012. The company will take a $150 million term loan and open a $50 million revolving credit facility from Bank of America Corp. to help finance the deal, according to the statement.

Dual Eligibles

The deal will help the company win the growing business in serving “dual eligibles,” said Richard Barasch, Universal American’s chief executive officer, in the statement. The group includes Americans covered by both Medicare, the U.S. government-backed insurer for the elderly, and Medicaid, the federal-state program for the poor.

Such patients are “typically a high utilization/high cost group, making management of this medical spending a priority to both state and federal governments,” Shove said. The deal leaves Universal American better-equipped to serve the group, which is “an arena that is poised for growth,” he said.

APS Healthcare, based in White Plains, New York, is owned by Chicago-based private equity firm GTCR Golder Rauner LLC, according to the statement. The deal includes an additional $50 million cash payment, payable in March 2014 and based on APS Healthcare’s financial results exceeding “certain thresholds,” Universal American said in the statement.

Goldman Sachs Group Inc. was financial adviser and Paul, Weiss Rifkind, Wharton & Garrison LLP provided legal counsel to Universal American, according to the statement. Credit Suisse Group AG was financial adviser and Kirkland & Ellis LLP was legal counsel for GTCR and APS Healthcare.

To contact the reporter on this story: Alex Nussbaum in New York at anussbaum1@bloomberg.net;

To contact the editor responsible for this story: Reg Gale at rgale5@bloomberg.net

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