Art of the SPAC: H&F’s MultiPlan underscores growth in capital instrument

PPD, another H&F portfolio company that provides outsourced pharma services, returned to the public markets in February at an initial EV of approximately $14bn.  

SPACs, or special purpose acquisition companies, have become increasingly prevalent in the market over the last several years. The economics of “blank check companies,” fat with fees, have more and more sponsors looking at space. All the while such transactions are getting more creative. 

Underscoring this trend, Hellman & Friedman-backed MultiPlan recently surprised the market with an agreement to merge with a SPAC in an $11 billion deal – the largest SPAC merger and largest PIPE alongside a SPAC in history. MultiPlan offers cost containment solutions to healthcare payers. 

The transaction can be viewed as a Venn diagram of three overlapping parts: an IPO, a traditional M&A sponsor deal and a SPAC deal.

Churchill Capital Corp. III will contribute up to $1.1 billion of cash raised in its IPO, all the while additional investors are set to inject $2.6 billion of PIPE commitments in the company. Irrespective of how much the SPAC redeems, the PIPE component gives MultiPlan a backstop and the comfort that it has as ample capital, one source noted.  

A combined $3.7 billion in new capital – topping the $2.7 billion that GA’s Royalty Pharma recently raised in its public debut – also presents new opportunities for MultiPlan. Namely: by delevering and gaining a path to public currency, MultiPlan will have the financial wherewithal to execute large scale M&A that it previously couldn’t (such as Equian, which New Mountain Capital sold to UnitedHealthCare’s Optum last year for $3.2 billion), sources said. 

MultiPlan’s existing net debt to adjusted EBITDA ratio will be reduced from 6.8x to approximately 5.8x, while its net debt to adjusted EBITDA at the operating company level will narrow to 4.1x, the announcement said.

From an M&A perspective, MultiPlan has been quiet over the last decade, with its latest purchase being that of NCN in 2011.

But there are other potential targets doing things like payment integrity: Cotiviti, which Veritas’ Verscend acquired in 2018, and Zelis, a portfolio company Bain and Parthenon. 

“Cotiviti might be a good SPAC deal or partner [for MultiPlan],” one source commented. “Cotiviti would be crazy not to think about something like this assuming they can tell a good story,” said another source, adding that there are plenty of other targets in the $20 million to $50 million EBITDA range.

The transaction also provides a path to liquidity for H&F, which bought MultiPlan in 2016 for $7.5 billion from Starr Investment Holdings. One benefit of the SPAC versus a traditional IPO: MultiPlan and its backers go into the deal knowing the price with higher certainty, a source said. 

Pharmaceutical Product Development, another H&F portfolio company which provides contract research services companies to pharma and biotech companies worldwide, returned to the public markets in February

PPD’s IPO assigned it an initial enterprise value close to $14 billion, up from the $3.6 valuation at which it was valued in its December 2011 take-private transaction.

For H&F, MultiPlan and PPD are also emblematic of the buyout firm’s playbook. Consistent with a broader trend in private equity, the San Francisco-headquartered firm is playing the long game.

Elsewhere, there’s no shortage of SPACs on the hunting ground. 

In healthcare-specific vehicles, there’s Healthcare Merger Corp., sponsored by MTS Health Partners and led by Steven J. Shulman. And there’s Hudson Executive Investment Corp, targeting healthcare and fintech. The latter will be led by Douglas Braunstein, JPMorgan Chase’s former CFO, and Douglas Bergeron, who founded DGB Investments. 

In recent success stories, AdaptHealth last July made its public debut when a Deerfield Management-sponsored SPAC bought the distributor of home medical equipment. The company, continuing to execute an aggressive M&A playbook, recently snapped up Solara from Linden and ActivStyle from Riverside, while simultaneously clinching a PIPE investment led by One Equity Partners.

On Thursday, the latest SPAC sponsored by Deerfield Management priced its IPO at $125 million

Traditional IPOs are also making noise. Just this week, Centerbridge Partners-backed GoHealth, which helps people shop for health insurance, raised approximately $914 million in its debut. The IPO comes about nine months after Centerbridge invested in GoHealth at an approximately $1.5 billion valuation, PE Hub reported. 

Be it SPACs or traditional IPOs, sources expect more private equity funds are looking at the public markets as a potential IPO path. A lot more folks are thinking an IPO is the way to go,” one source commented. 

Action item: Read more about Churchill’s merger agreement with Multiplan.