There’s no shortage of dealmakers, sponsors or strategic buyers thinking about what’s on the horizon for Advisory Board Co, the publicly traded healthcare and higher-education consulting company navigating strategic alternatives.
After activist pressure from Paul Singer’s Elliott Management hedge fund, the roughly $1.8 billion market-cap company said Feb. 6 that the board had kicked off a strategic review. The company retained Goldman Sachs and Allen & Co. for financial advice alongside Skadden, Arps, Slate, Meagher & Flom for counsel.
Advisory Board said at the time it would weigh transactions such as a breakup or sale of all or part of the company, among other things.
Goldman Sachs is said to have sent out books earlier this month, according to three sources, one of whom said first-round bids are due around this week.
A heated process encompassing a broad pool of potential buyers is anticipated to follow. While a lot remains uncertain as to how the process will play out, sources expect both strategics and sponsors to take hard looks at potential transactions.
Healthcare and education
The challenge is largely around how the deal gets done. The Washington company’s healthcare and education segments are deemed to lack synergies, encompass different growth profiles and EBITDA margins, and arguably possess different sets of buyers.
PE also could buy the company in full and then unload the smaller education piece.
Among those rumored to be looking at Advisory Board’s healthcare piece are PE groups with assets in the space as well as strategics including UnitedHealth Group’s Optum health-services subsidiary and the healthcare-performance-improvement company Premier Inc., one source said.
Besides private equity, Stifel analysts Shlomo Rosenbaum and Adam Parrington said in a previous report that potential strategic buyers could be Accenture, Cap Gemini, Cognizant, IBM and Infosys. Optum is a less likely strategic buyer, the analysts said in the report, as are players such as Aetna, athenahealth, Cerner, Maximus and Vizient.
The challenge with Advisory Board’s healthcare business, whose top-line growth declined year-over-year in 2016, is determining new avenues for growth as it has historically struggled to integrate acquisitions, sources said.
Meanwhile, Advisory Board’s better-performing higher education piece, while a smaller slice of the business, ought to command significant sponsor interest.
Advisory Board added the education business in December 2014 when it shelled out $850 million, mostly in cash, for Royall & Co. The sales process leading to that transaction encompassed several sponsors, many of whom would be happy to acquire the business today, one source said.
Advisory Board paid a purchase-price multiple of around 18.5x Royall’s trailing EBITDA, analyst Mohan Naidu of Oppenheimer told The Deal in February.
The launch of Advisory Board’s strategic review in February came after Elliott Management in mid-January disclosed an 8.4 percent stake in the company.
Elliott at the time approached Advisory Board for a dialogue. The activist settled with Advisory Board on March 3, disclosing in an SEC filing that it had reached a standstill agreement with the company. But the firm left the door open for “potential participation in strategic transactions” that may be evaluated.
Advisory Board in February posted 2016 full-year revenue of $803.4 million, up nearly 3 percent from $780.8 million a year earlier. In 2016 about 28 percent of revenue, or $225 million, stemmed from the education business.
Adjusted EBITDA increased nearly 10 percent to $188.3 million in 2016 from $171.7 million a year earlier, as the higher-margin educational business offset slowing healthcare growth. Oppenheimer’s Naidu previously estimated the education unit generates 30-percent-plus EBITDA margins.
In a March 17 email Advisory Board spokesman Robert Borchert declined to comment other than to reiterate the company’s statement that the board’s strategic-review process may take a number of months.
Representatives of Elliott and UnitedHealth didn’t immediately return requests for further comment. A Premier representative told Buyouts the company does not discuss a strategic-review process.
Action Item: Reach Advisory Board’s IR head, Robert Borchert: +1 202-266-6240 or IR@advisory.com
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