Happy Thursday, everybody!
I’ve continued my quarantine journey out West, and have settled in Santa Monica for a while. Although coronavirus is surging in LA, the beaches are surprisingly uncrowded and the feeling is much more zen than life in Brooklyn.
The art of the SPAC: H&F
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 earlier this week 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 that it 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 told me.
(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: Veritas’ Cotiviti and Zelis, a portfolio company of 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 to $50 million EBITDA range.
Stay tuned for my full story on MultiPlan.
New on the block: Proving an outperformer through the downturn, Partners Group-backed PCI Pharma Services has formally kicked off its sale process, I learned this week. Check out my story for price expectations and more.
Elsewhere… Senior LIFE, which provides prescription medications and offers coordinated health and support services to seniors, is weighing its options. Read more.
Signalling growth in the niche industry, the process for Senior LIFE comes on the heels of Apax Partners’ acquisition of a stake in InnovAge, one of the largest PACE organizations in the country and one of few for-profit providers. The deal valued InnovAge at $950 million, I wrote.
That’s it for me today. As always, reach me at email@example.com with any tips, feedback or just to say hello.