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PE HUB Healthcare Wire Highlights, 6.21.18

Reshaping the healthcare market, one payer services deal at a time

Happy Thursday!

We’ve almost hit the midyear mark, healthcare enthusiasts. Where did the time go?!

The industry’s sponsor-driven activity has certainly kept me busy. It’s been only days since KKR’s $9.9 billion deal for Envision, among other billion-dollar-M&A, but that’s old news by now.

The healthcare deal of the week is arguably Veritas Capital’s $4.9 billion deal for Cotiviti, which the sponsor is buying through its existing portfolio company, Verscend.

As one source put it, the deal for Cotiviti – which provides analytics-driven payment accuracy services for healthcare payers – sets a new “high watermark” in the sector from a valuation standpoint. At $44.75 a share, the agreed-upon pricetag equates to a 32 percent premium over the payment integrity company’s June 4 share price, prior to media reports of a sales process.

The reality is, so few companies are generating upwards of $50 million or $100 million of Ebitda that PE firms are willing to pay up for good growth and strong margins, another source said. At the same time, Cotiviti is unusual in that Advent still owned a big chunk of the company two years after taking it public.

That public market visibility in some ways creates more interest and makes for more logical PE opportunity, one source noted.

Price aside, the deal further underscores the heightened interest in all things touching payer services or payment processing in the healthcare industry. I guess that shouldn’t be surprising. Paying healthcare bills is SUCH a burden.

That said, more dealmaking is sure to follow: “It’s a much bigger part of the market than people realize, and it’s [historically] been underinvested from a PE standpoint,” one of my sources said. Those that have played in the space have also proven successful.

And, of course, the big healthcare payers – the Humanas of the world – continue to actively reshape the healthcare landscape through their own deal efforts. That’s driving further consolidation among midsize and smaller payment-related assets, sources have said.

So what’s next? Where will the bridesmaids in the Cotiviti process turn their attention? Send me your thoughts at springle@buyoutsinsider.com.

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