- Proposed $113 mln dividend is almost half of 2014 equity investment
- JPMorgan auction earlier this year failed to produce deal
- Ability deemed unlikely to return to market in 2018
Despite failing to secure a buyer at its desired $1 billion-plus valuation earlier this year, Summit Partners is poised to recoup a good chunk of its investment in Ability Network as the healthcare IT company continues to perform nicely.
A proposed debt issuance by Ability is expected to produce total proceeds of $525 million, which among other things will fund a $116 million dividend to Summit and other shareholders, Moody’s said in a report. The proposed dividend is the first for Summit since its 2014 buyout, Fitch Ratings said.
The transaction will push Ability’s leverage to 9.5x debt-to-pro forma 2017 EBITDA, with leverage likely to improve through good earnings growth, Moody’s said. Fitch estimated its pro forma leverage will be 8x when the deal closes.
When Summit a few years ago bought Ability in a $550 million deal, the Boston growth equity firm put in $283 million of common equity alongside Bain Capital Ventures and other investors, inheriting an about 50 percent interest, according to Moody’s.
That means the proposed dividend is almost half the initial equity investment — a deal that for Summit represented one of its largest healthcare-focused investments.
The planned leveraged recap isn’t surprising, sources said, after high valuation expectations caused Ability’s JP Morgan Securities-run auction to fizzle this year.
Ability, Minneapolis, had hoped to fetch at least an 18x multiple of EBITDA, and ultimately at least one offer south of $1 billion was rejected, sources previously told Buyouts.
Despite the busted process, the company is performing well today, and growth and profitability seem to be accelerating, one source noted. Ability is still guiding for about $75 million in adjusted run-rate EBITDA for 2017, the source added.
Moody’s in its report placed EBITDA at $54 million for the trailing 12-month period ended Sept. 30.
A recap also makes sense because some of Ability’s most logical buyers are unlikely to explore the deal again for at least one or two years, another source added.
For instance, one logical buyer is Change Healthcare Holdings, the revenue cycle giant created in 2016 when McKesson’s healthcare IT unit combined with Blackstone-backed Change. But Change is unlikely to stretch on a deal in the near term, the source said, as the newly created company is busy preparing for its own initial public offering.
There’s also Bain Capital-backed Navicure, the source noted, but after Ability’s process was shelved, the revenue cycle management provider took its attention elsewhere. Bain’s Ability in September emerged as the winning bidder for Sequoia Capital-backed ZirMed in a deal that valued the healthcare software-as-a-service company at about $750 million.
Ability, led by Chairman and CEO Mark Pulido, offers web-based connectivity and workflow software that help providers manage clinical and administrative tasks in ambulatory, acute and post-acute settings. The SaaS firm helps healthcare providers securely connect to Medicare and most commercial insurance payers via the internet.
Action Item: Get in touch with Summit Managing Director Darren Black at +1 617-824-1011
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