MedAssets Buying Accuro

MedAssets Inc. (Nasdaq: MDAS) has agreed to acquire Accuro Healthcare Solutions Inc., a Dallas-based provider of financial and operational solutions for healthcare providers. The deal is valued at approximately $350 million in cash and stock (including assumed debt). Accuro currently is in registration for a $143.75 million IPO, and is controlled by Welsh, Carson, Anderson & Stowe (79.94% stake).

PRESS RELEASE

MedAssets, Inc. (NASDAQ: MDAS) today announced that it has entered into a definitive agreement to acquire Accuro Healthcare Solutions, Inc., a leading provider of revenue cycle management (RCM) solutions focused on delivering tangible financial improvement to hospitals and other healthcare providers.  MedAssets believes this acquisition will expand its leadership position in hospital-based revenue cycle management by creating a broader and more comprehensive suite of RCM ASP-based software and service solutions.

The combination of MedAssets and Accuro creates a leading healthcare ASP-based technology and services provider with 2007 pro forma net revenue of approximately $278 million and pro forma adjusted EBITDA of approximately $87 million (a reconciliation of pro forma adjusted EBITDA to the nearest GAAP measure is provided below). The combined companies' customer footprint is expected to total more than 3,300 U.S. hospitals, including more than 2,000 RCM hospital facility customers.

“Accuro is an outstanding strategic and complementary fit for MedAssets.  We are confident about the numerous benefits as well as opportunities for synergy that this combination will offer to our customers and stakeholders,” said John A. Bardis, chairman, president and chief executive officer of MedAssets, Inc.  “This combination also accelerates our objective of becoming the clear ASP-based technology leader in the healthcare revenue cycle industry.

“The primary reason for this transaction is to increase the value we can collectively deliver to hospitals and health systems.  We are broadening MedAssets' revenue cycle management solution suite with the addition of Accuro's best-of-breed, ASP-based products.  These comprehensive RCM capabilities are all focused on helping healthcare providers achieve significant and sustainable financial improvement as well as optimize revenue integrity in their RCM process,” Bardis added.  “In addition to being an outstanding strategic fit, the simplicity of Accuro's subscription fee-based revenue provides a predictable financial model.”

The combination of MedAssets and Accuro is highly complementary from a product offering perspective and will present significant, strategic benefits for MedAssets' customers and shareholders given the following:

A comprehensive, best-of-breed suite of RCM solutions from a single strategic provider with great depth of knowledge to solve meaningful revenue cycle and spend management issues;
A superior, quantifiable value proposition with products and services that deliver near-term financial ROI with minimal or no capital expenditure to the customer;
An expanded customer footprint that achieves critical mass and offers additional opportunity to grow market share by leveraging MedAssets' national sales organization and leadership position; and
A commitment to invest in the development, integration and introduction of innovative solutions that deliver increasing value to help improve the financial success of healthcare providers.
“In evaluating the options to significantly enhance Accuro's customer value, we are confident this transaction will deliver significant near and long-term benefits,” said John K. Carlyle, chairman and chief executive officer of Accuro Healthcare Solutions.  “The combination of these two companies will offer expanded RCM capabilities, and should further enhance the financial improvement opportunities for our healthcare provider customers.”

Transaction Details

Under the terms of the agreement, MedAssets will pay approximately $207 million in cash and 8.85 million shares of MedAssets common stock, plus a deferred payment of $20 million due 12 months after closing.  The total transaction value is approximately $350 million, inclusive of Accuro's $100 million debt outstanding.

MedAssets will fund the cash portion of the transaction with cash on hand and additional bank debt.  Bank of America has provided a financing commitment for the funding, though the financing will be largely completed within the Company's existing revolving credit facility and Term Loan B structure.

Welsh, Carson, Anderson & Stowe, a leading private equity investment firm that owns approximately 80% of Accuro, will own approximately 12.8% of MedAssets common stock upon completion of the transaction and will be represented on the Company's board of directors by D. Scott Mackesy, a Welsh Carson general partner.  “We believe this transaction brings together two very strong enterprises and sets the stage for market share growth for years to come.  We look forward to a solid, long-term partnership with MedAssets going forward,” Mackesy commented.

“The acquisition of Accuro creates critical mass in a highly fragmented industry and firmly establishes MedAssets as a leader in revenue cycle management,” stated L. Neil Hunn, MedAssets' chief financial officer. “Accuro will accelerate our attainment of a strategic goal to provide a comprehensive suite of RCM solutions to customers, which will help position us to benefit from an emerging trend of hospitals searching for a single strategic partner to help manage their revenue cycle.

“This transaction will also create EBITDA margin improvement sooner through the coordination of certain product development resources, the segmentation of certain overlapping products, and an elimination of duplicative corporate overhead expenses.  Further, we expect this transaction will drive additional customer and shareholder value by leveraging our combined sales force to win new business and cross-sell our broad and comprehensive capabilities to existing customers.

“Importantly, more than 90% of Accuro's revenue is recurring in nature due to its ASP-related subscription fees, which is comparable to our current recurring revenue trends, and provides tremendous visibility into the business growth outlook on a 12-month basis,” Hunn added.  “Assuming a July 1, 2008 closing date and not adjusting for potential deferred revenue discounts, we believe Accuro will add approximately $37 million to $40 million in revenue to MedAssets this year.  Accuro's revenue is expected to have adjusted EBITDA margins approximately 200 basis points higher than the consolidated 2007 MedAssets adjusted EBITDA margins.  In addition, given the potential revenue and operating structure synergies, and reduced risk of our operating strategy, we believe our consolidated adjusted EBITDA margins will increase by 75 to 100 basis points in 2009.

“On an adjusted earnings per share (EPS) basis, excluding transaction-related amortization and deferred revenue discounting, we believe this transaction will be break-even to slightly dilutive to our 2008 adjusted EPS.  In 2009, we expect this transaction to be accretive to our adjusted EPS, including cost synergies and exclusive of any purchase accounting adjustments,” Hunn concluded.
The transaction does not require a shareholder vote, and is subject only to customary closing conditions and regulatory approval related to a Hart-Scott-Rodino filing, which will be submitted as soon as practicable.  The transaction is expected to be completed within 60 to 90 days.

Lehman Brothers is acting as MedAssets' lead financial advisor in this transaction.  Morgan Stanley also acted as a financial advisor to MedAssets. Willkie Farr & Gallagher is acting as MedAssets' legal counsel. Citi and William Blair & Co. are acting as financial advisors to Accuro, with Ropes & Gray acting as Accuro's legal counsel.