CD&R to make ~3x its money on Tranzact

  • Including earnout, gross MOI could increase to as much as 3.4x
  • Company’s Ebitda grew at 13 pct CAGR during CD&R’s <3 year investment hold
  • Investment made through CD&R’s 9th fund, which collected $6 bln

Less than three years after backing Tranzact, Clayton, Dubilier & Rice expects to generate a gross multiple of at least 2.8x, a document circulated to investors showed.

Global insurance broker Willis Towers Watson said Sunday it agreed to acquire Tranzact, provider of direct-to-consumer digital marketing and data science to health insurers.

The pending transaction was assigned a total purchase price of $1.2 billion, plus a potential earnout of up to $200 million in either cash or stock, should Tranzact achieve certain financial targets.

Including the earnout, CD&R’s proceeds could increase to up to $870 million, from $720 million, boosting its gross MOI to as much as 3.4x, according to the document.

CD&R expects to generate a gross IRR of approximately 40 percent, excluding the earnout, according to the document.

CD&R, with offices in New York and London, completed its investment in Tranzact in July 2016. The firm through Fund IX, a $6 billion pool, made an approximately $255 million investment in Tranzact, while the company’s management team reinvested in the company, the document said.

Tranzact saw a 33 percent increase in Ebitda in 2018, the document showed. During CD&R’s investment period, Ebitda grew at a 13 percent compound annual growth rate, a source familiar with the situation added.

Tranzact, of Fort Lee, New Jersey, helps insurers maximize branding and sales via various marketing services and technology. Its services and software use social media, personalized email campaigns, website design, pay-per-click campaigns and search engine optimization.

The company employs approximately 1,300, including 850 licensed agents. Its products span segments including Medicare Advantage, Medicare Supplement Drug Plan, as well specialty channels such as dental, vision, life and indemnity.

David Graf is CEO of Tranzact, while CD&R Operating Partner Russ Fradin is chairman of the company.

For CD&R, the exit comes on the heels of the February public debut of newly-created animal health technology company Covetrus. In connection with the IPO, the firm achieved an on-paper return on of 4.8x on its stake in Vets First Choice, Buyouts reported.

In other healthcare activity, CD&R in October led a financing round in SmileDirectClub, which delivers custom-fitted invisible aligner orthodontics to consumers’ homes without requiring visits to dental or orthodontic clinics. The fundraising valued the teledentistry company at $3.2 billion.

CD&R also owns a 55 percent stake in naviHealth, a manager of post-acute benefits for health plans, alongside Cardinal Health. In October 2016 it formed Agilon Health, which helps equip physicians with tools to transition to value-based care, from the traditional fee-for-service model of reimbursement.

BofA Merrill Lynch is offering financial advice and providing a committed term loan financing to Willis Towers Watson. J.P. Morgan Securities is advising Transzact and CD&R. Weil, Gotshal & Manges is counsel to Willis Towers Watson, while the sell-side is receiving legal advice from Debevoise & Plimpton.

Action Item: Check out CD&R’s form ADV here:

Update: This story has been updated to clarify Ebitda growth under CD&R’s ownership and correct fund information. A previous version identified Tranzact as a Fund X investment.