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Auction for Summit Partners-backed Ability Network busts

The JP Morgan Securities-run process for Summit PartnersAbility Network fizzled after bids failed to meet valuation expectations, three sources familiar with the matter told Buyouts.

At least one offer south of $1 billion was turned down, the sources said. One of these sources and a fourth said Summit’s Ability Network had hoped to fetch at least an 18x multiple of EBITDA, the approximate multiple in terms of run-rate EBITDA that Summit paid for the company three years earlier.

The healthcare-technology provider generates about $60 million in EBITDA on a trailing 12-month basis, whereas its adjusted run-rate EBITDA for 2017 is close to $75 million, two of the sources said. That implies the sellers were hoping to produce a $1-billion-plus deal.

Update: An Ability spokeswoman wrote in an email to Buyouts: “We participated in a very targeted market check with a select group of parties that had engaged with us. We were consistent in our message to everyone that Summit was still early in its investment, Mark Pulido was still early in his tenure as CEO, and we are very happy with the strategy and trajectory of the business.”

“Unless a very compelling offer was put on the table that met Summit’s reservation price today, current shareholders were happy to continue holding and growing the business,” she continued. “Summit and management remain very bullish on the business and are excited about our unique platform and continued pursuit of our growth strategy.”

After JP Morgan was tapped for financial advice, preliminary meetings for Ability were held throughout the week of the JP Morgan Healthcare Conference in San Francisco in January. The company created a lot of buzz from the PE community, but the market ultimately had difficulty buying the strong guidance and adjustments used to market Ability, sources said. The company’s growth had softened to the high-single-digit range, one of the people said.

Summit, the Boston growth equity firm, injected $550 million in Ability in April 2014 following a Houlihan Lokey-run strategic-review process. The deal represented one of Summit’s largest healthcare-focused investments ever.

Ability’s then-CEO, Mark Briggs, said in an interview at the time that Ability had also weighed a potential initial public offering prior to the recapitalization. The company received an “enormous amount of interest” ahead of the deal with Summit, he said at the time.

Briggs’s retirement was announced just months after Summit bought Ability, following which the company turned to Chairman Mark Pulido to add the CEO’s post. More shuffling in the C-suite soon followed, with the appointment of John Gappa as CFO in November 2015.

Gappa, for his part, is an experienced deal maker. The exec joined Ability from MOM Brands, where as CFO he helped lead the company through its $1.15 billion sale to Post Holdings.

Ability was founded in 2000 as VisionShare Inc. The company offers web-based connectivity and workflow software that help providers manage clinical and administrative tasks in ambulatory, acute and post-acute settings. The software-as-a-service  firm helps healthcare providers securely connect to Medicare and most commercial insurance payers via the Internet.

As the process for Ability is shelved, eyes are likely to shift to another large healthcare IT provider new to the auction block. ZirMed, backed by Sequoia Capital, is working with William Blair on a strategic-alternatives process that could result in a billion-dollar transaction, Buyouts reported last week.

A JPMorgan spokeswoman declined to comment, while those with Summit did not return requests for comment.

Update: This report has been updated to include comment from an Ability spokeswoman.

Action Item: Touch base with Summit Managing Director Darren Black at +1 617-824-1011

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