July 27 (Bloomberg) -- UnitedHealth Group Inc. is nearing an agreement to buy Executive Health Resources Inc., a medical services firm backed by Abry Partners LLC, for about $1.5 billion, said three people with knowledge of the talks.
UnitedHealth would add the Newtown Square, Pennsylvania-based company to its Ingenix database management and consulting unit, said the people, who spoke on condition of anonymity because the talks are private. It may be an all-cash transaction, one of the people said. An agreement could be days away and may still fall apart, the people said.
UnitedHealth, the largest U.S. insurer by sales, is seeking acquisitions to expand its health-services units, used by doctors and employers to manage medical costs, Chief Executive Officer Stephen Hemsley said July 20 on a conference call. Executive Health, founded in 1997 by Chief Executive Officer Robert Corrato, provides hospitals with teams of outside physician advisers to improve regulatory compliance and efficiency.
“Strategically, it makes sense for United,” said Brian Wright, a Collins Stewart LLC analyst in New York, in a telephone interview today. Facing declining profit growth in its core insurance business, “they’ve got to look outside those areas to produce meaningful growth.”
The shares of UnitedHealth fell 69 cents, or 2.2 percent, to $30.78 at 4:01 p.m. in New York Stock Exchange composite trading. Executive Health Resources is closely held.
Tyler Mason, a spokesman for Minnetonka, Minnesota-based UnitedHealth, declined to comment. Michelle Bowman, of Executive Health, and Hilary Grove, a partner at Abry, didn’t immediately respond to phone messages.
Executive Health Resources would be UnitedHealth’s fifth acquisition in 2010 of a closely held company outside its insurance unit, which accounted for about 75 percent of its earnings last year, according to Bloomberg data.
The acquisitions, all announced without financial terms, include Picis Inc., a medical-software maker; QualityMetric Inc., a patient survey firm; Wellness Inc., which operates workplace wellness clinics; and ChinaGate, a Shanghai-based contract-researcher that conducts drug trials for pharmaceutical companies.
UnitedHealth generated $357 million in earnings from operations from its health-services units in this year’s second quarter, about 20 percent of its total operating profit, Hemsley, said on the company’s July 20 conference call. Hemsley said he wants to double that percentage in the coming years.
WestView Capital Partners
WestView Capital Partners, a Boston-based private equity firm, made a minority equity investment in Executive Health in 2006, according to a WestView statement at the time. It sold its interest to Abry, also based in Boston, in 2007.
Executive Health hired UBS AG to find a buyer earlier this year, the people said. MedAssets Inc., of Alpharetta, Georgia, is among companies that bid on the business, two of the people said. Robert Borchert, a MedAssets spokesman, declined to comment.