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Conduent to seek buyer for BenefitWallet

Conduent, the business process services company that spun off from Xerox, is putting BenefitWallet up for sale, four sources said.

The sale comes after Conduent in August said it was undertaking a strategic and operational review of the company and each of our business lines.

BenefitWallet is one of the largest HSA administrators with more than two million customers and $1.4 billion of HSA assets, said analyst Bryan Bergin, of Cowen, in an Aug. 2 research note. The unit produced $85 million revenue in 2018, which is expected to rise to $98 million in 2019 and $110 million in 2020, according to the note. The unit’s estimated 2020 Ebitda is $27 million, the note said.

BenefitWallet could sell for 15x to 20x of the company’s $25 million Ebitda, one source said. Some consider the valuation rich, while Seeking Alpha in June 2018 said the Pittsburgh company is not worth more than $250 million.

Books for BenefitWallet are not out yet, sources said. Conduent has not hired an outside investment bank to oversee the sale, people said. The company is handling the process itself with Conduent’s corporate development team, people said.

BenefitWallet will likely attract the interest of private equity, which will have a hard time competing against strategics, sources said. A bank, that can take on BenefitWallet’s deposits, is seen as the most likely buyer, one of the sources said.

Conduent completed its spin off from Xerox in January 2017. At the time, the business process services company had about $6.7 billion in annual revenue and more than 93,000 employees. The company since then has seen a 39 percent drop in new business signing, lost a $140 million contract with California, while its revenue has dropped, according to CRN.

Cowen’s Bergin cut his revenue estimate for Conduent to $4.48 billion for fiscal 2019 from $4.67 billion. Ashok Vemuri, who was criticized by activist investor Carl Icahn, resigned in May as Conduent’s CEO. The company then named Cliff Skelton as interim CEO. (Skelton is the former president of Fiserv Output Solutions.)

Conduent provides diverse services including payment processing, customer care, human resources, finance & accounting, as well as administrative services. BenefitWallet manages more than one million accounts and is part of Conduent’s human resource services division.

In February, Conduent agreed to a pay $235.9 million to Texas over claims it caused taxpayers to pay for thousands of unnecessary children’s dental and orthodontic procedures for over nearly a decade, the Houston Chronicle said.

Conduent has sold businesses to private equity before. In 2018, Conduent sold Buck Consultants, its U.S. based human resource consulting and actuarial business, to H.I.G. Capital.

Conduent and BenefitWallet could not be reached for comment.

* Milana Vinn contributed to this report

Action Item: Read Conduent’s most recent 10Q here.