Norwest Equity-backed GoHealth seeks buyer: sources

  • Norwest Equity Partners invested $50 mln in GoHealth in June ’12
  • Chicago company difficult to value
  • Recent industry activity: CD&R’s $1.2 bln sale of TRANZACT to Towers Watson

Rapidly-growing GoHealth, which helps consumers shop for healthcare insurance, is evaluating a sale, multiple people with knowledge of the situation told Buyouts.

Chicago’s GoHealth, which received backing from Norwest Equity Partners about seven years ago, is being advised by William Blair, the people said.

The process included strategics and financial sponsors and is in its late stages, they said.

Founded in 2001 by President Brandon Cruz and CEO Clint Jones, GoHealth is an online exchange used by individuals, families and businesses to compare and find the best and most affordable health insurance coverage for their needs. The company helps consumers enroll in supplemental Medicare Supplement plans, among various other insurance products.

One of the people likened GoHealth to a tech-enabled call-center business. With more than 10,000 licensed insurance benefits advisers, employees use proprietary software to consult with and enroll consumers in insurance policies by phone or online at no cost. GoHealth in return receives a commission when policies are purchased, one of the people explained.

Price chatter among interested financial sponsors was around the ballpark of $1 billion to $1.2 billion earlier in the process, two of the people said. A sale to a strategic could command a valuation as high as $2 billion or more, one of the people added.

Sources characterized GoHealth as having a complex financial profile due to the significant gap between the asset’s GAAP Ebitda and true cash flow.

The company is reporting 2019 GAAP Ebitda of around $125 million and expects to produce some $150 million in 2020 GAAP Ebitda, one person said. Actual Ebitda is closer to $50 million, but the company generates no cash flow, some of the people said.

Customer acquisition costs offset first year commission for policies that are sold, accounting for the gap between Ebitda and negative cash flow, one of the people said.

In other words, while GoHealth gets paid for its first-year commission right away, the company is booking Ebitda that reflects its assumption that customers renew policies for a certain number of years once they commit to a plan, this person and another said.

As a buyer, sources said, you have to accept GoHealth’s renewal assumption and presume its model is sticky enough.

Despite the difficult financial profile, GoHealth has grown rapidly. GoHealth in September 2018 said it was on track to hire 600 new positions before the 2019 open enrollment period begins. The company said at the time it has achieved a compounded annual growth rate of 47 percent.

From a strategic buyer perspective, acquirers could include large insurance companies the likes of Aon or Willis Towers Watson, as well as consulting firms such as Mercer or companies in the payer universe, sources suggested. Strategics may be more comfortable with GoHealth’s cash flow issues, one of the people suggested.

Underscoring strategics’ broader interest in the space, Towers Watson in March acquired TRANZACT, which provides direct-to-consumer digital marketing and data science to health insurers. The transaction commanded a total purchase price of $1.2 billion, plus a potential earnout of up to $200 million.

The deal marked an exit for Clayton, Dubilier & Rice, which expected to generate a gross multiple of at least 2.8x on TRANZACT, Buyouts reported.

Other notable players in the space include publicly-traded eHealth, the parent company of eHealthInsurance.com, Peloton Equity-backed HealthPlanOne and HealthMarkets, whose investor base includes Blackstone Group, Goldman Sachs Capital Partners and APriori Capital Partners.

GoHealth executives and representatives of Norwest and William Blair could not immediately be reached on Monday.

Action item: Reach GoHealth’s Chicago HQ at (312) 386-8200