Kinderhook Industries’ MHH Healthcare has agreed to buy Medical Card System, Puerto Rico’s second-largest Medicare Advantage plan, with enrollment in such plan offerings on the rise.
The acquisition, which joins MHH subsidiary GlobalHealth, will mark Kinderhook’s largest transaction in history in terms of purchase price, a source familiar with the deal told PE Hub.
MTS Health Partners advised Kinderhook, while Atlantic Park Strategic Capital Fund is providing financing on the transaction.
A directly negotiated deal has been in the works for about a year, with Guggenheim Securities originally engaged pre-pandemic to advise MCS on a potential sale, one source said. A strategic buyer had the business under letter of intent in late 2019, but the deal never happened due to a financing constraint, two people said.
With the deal, longtime investor JLL Partners, which reportedly invested $64 million into MCS in 2004, will exit its stake in full.
For Kinderhook, the deal was led by Managing Director Chris Michalik, who is the former chairman of WellCare Health Plans, alongside vice-president Matt Bubis. Kinderhook in 2014 bought GlobalHealth, an Oklahoma-based HMO, where it serves approximately 13,000 Medicare Advantage members.
Headquartered in San Juan, Puerto Rico, MCS brings to the MHH platform a leading healthcare services organization offering a variety of insurance plans and managing care for Medicare Advantage and Commercial members. The company services more than 185,000 Medicare Advantage members and 205,000 commercial members in Puerto Rico.
Puerto Rico is a unique market, with approximately 80 percent of US territory’s senior population now enrolled in Medicare Advantage, compared with about 40 percent broadly in the US, one source noted: “There’s a lot of creativity in the Puerto Rico market. It has moved quickly to provider-aligned healthcare.”
It’s also a concentrated market. The island territory’s other operators of MA plans include InnovaCare Health – which, doing business as MMM, or Medicare y Mucho Mas, is the island’s largest and oldest MA plan – in addition to Triple-S and Humana.
Kinderhook’s entrance into Puerto Rico comes a few months after Summit Partners, less than two years into its investment, sold MMM to health insurance giant Anthem. Besides playing in MA, MMM operates the second-largest Medicaid plan on the island.
For MHH, MCS expands the Kinderhook platform geographically speaking. GlobalHealth in the meantime is preparing to enter Texas and Arizona’s MA markets in 2022. MHH’s playbook is about market share gain, which is achieved through competing with innovative plan design and provider alignment, one source said.
The deal comes as investors remain eager to invest behind the fast growth of the Medicare Advantage market, with a long runway of aging baby boomers continuing to drive demand.
Health insurer Bright Health, which in May filed with the Securities and Exchange Commission to go public, estimated the Medicare Advantage market will grow 10 percent, or by $170 billion, over a five-year period from 2019 to 2024. The Medicare Advantage market will exceed $1 trillion by 2023, according to CMS.
Others in MA have already taken advantage of the strong public markets, with Alignment Healthcare, backed by Warburg Pincus and General Atlantic, completing its IPO in late March. In October, Clover health went public through a SPAC transaction that valued the business at $3.7 billion. Elsewhere, Devoted Health has scored capital from well-known investors like Andreessen Horowitz.
Kinderhook in January 2020 closed its sixth fund at $1.11 billion. The private equity group invests in the lower-mid-market, targeting healthcare services, environmental/business services and automotive/light manufacturing sectors.