New Mountain nears deal for VC-backed ArroHealth

New Mountain Capital is close to acquiring ArroHealth, the venture-capital-backed provider of risk-adjustment services to health plans and providers, according to two sources.

The company is being acquired through New Mountain’s CIOX Health clinical-data-exchange platform, one source said.

The transaction resulted not from a formal auction process but from the Hauppauge, New York, company’s discussions with a small group of strategics, including PE platforms like CIOX, the source said. New Mountain and ArroHealth began talks about six months ago, the source added.

ArroHealth, formerly MedSave USA, generates close to $10 million in EBITDA, according to one of the sources and a third.

Nick Richitt of SunTrust Robinson Humphrey is advising ArroHealth, one source said.

Information about the deal, which has not formally been announced, first appeared on the FTC website. An HSR early termination notice disclosed that New Mountain is purchasing ArroHealth through its fourth fund. An HSR filing is required for proposed transactions that are valued at more than $50 million.

ArroHealth provides technology-enabled risk-adjustment services and HEDIS (healthcare effectiveness data and information set) services, which include medical-record retrieval, coding and in-office evaluations. Clients include health plans and providers participating in Medicare Advantage, managed Medicaid and Commercial Health plans, as well as the Health Insurance Exchange marketplace.

San Mateo, California, growth equity firm Trident Capital and Boston healthcare technology VC firm HLM Venture Partners acquired their majority stake in the company in October 2013. Terms weren’t disclosed.

ArroHealth’s website also lists Sandbox Industries and BlueCross BlueShield Venture Partners, a fund that Sandbox manages, as an investor.

Platform

New York’s New Mountain created CIOX Health via the 2016 merger of four companies: HealthPort, IOD, Care Communications and ECS. The four companies were all identified and acquired on an exclusive, proprietary basis between December 2014 and December 2015.

The ArroHealth deal marks the first add-on transaction for CIOX, Alpharetta, Georgia, since that time.

CIOX will continue to seek add-ons of similar size to ArroHealth that are tech-oriented and enable interoperability, one source said. In healthcare, interoperability refers to the ability to exchange and interpret data between systems and devices.

Led by CEO Ed Coleman, CIOX has already achieved significant scale. The company says it serves three out of five hospitals in the U.S., 16,000 physician practices and more than 100 health plans, while employing more than 7,500.

New Mountain’s recent bets in healthcare include its investment in Convey Health in October and Island Medical Management in September.

The private equity firm also is working with Harris Williams and William Blair on an auction for ABB Optical, as first reported by Buyouts in March. The nation’s largest soft-contact-lens distributor, generating close to $80 million in EBITDA, is expected to command significant sponsor interest and score a valuation north of $1 billion.

Representatives of New Mountain and SunTrust declined comment, while those with Trident, HLM and ArroHealth didn’t immediately return requests for comment.

Action Item: View New Mountain’s current portfolio here: http://www.newmountaincapital.com/new-mountain-private-equity/portfolio-companies/

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