Performant to acquire Edison Partners-backed PHX for $130 mln

Performant Financial Corp has agreed to buy Premier Health Exchange Inc for $130 million. SunTrust Robinson Humphrey served as financial advisor to Performant on the transaction. Based in Bedminster, New Jersey, PHX, which was backed by Edison Partners, is a provider of healthcare cost management solutions.

PRESS RELEASE

LIVERMORE, Calif., Jan. 28, 2015 (GLOBE NEWSWIRE) — Performant Financial Corporation (Nasdaq:PFMT) (“Performant”) announced that it has entered into an agreement to acquire Premier Healthcare Exchange, Inc. (“PHX”) for $130 million. The transaction consideration consists of $108 million in cash, subject to certain adjustments contemplated by the merger agreement, and $22 million of Performant common stock to be issued to key PHX stockholders.

Based in Bedminster, New Jersey, privately-held PHX is a leading provider of healthcare cost management solutions for more than 200 commercial health plans and third party administrators (TPAs). PHX’s pre-payment audit and network management capabilities will provide a strong complement to Performant’s existing post-payment audit, proprietary analytics and recovery capabilities.

Nationally, over $2.9 trillion dollars were spent across government and commercial health plans, with error rates ranging from 4-10%, according to The Journal of the American Medical Association. Controlling waste has become more complex and difficult to manage. As a result, payors are developing end-to-end cost management strategies that include a full spectrum of pre- and post-payment solutions.

Together, Performant and PHX will provide a powerful, comprehensive cost management solution. PHX’s group health expertise combined with Performant’s Medicare and commercial experience is expected to accelerate growth by diversifying revenue, allowing entry into new markets, adding new customers and leveraging the combined company’s existing audit and recovery infrastructure.

“We are extremely excited about the addition of PHX. This acquisition not only accelerates Performant’s growth by expanding the markets we serve, but also helps realize our vision of building the industry’s most comprehensive solution to combat waste in the healthcare industry,” said Lisa Im, CEO of Performant. “The combined company will continue to build new, value-added solutions for our customers’ rapidly growing and diversifying product lines. While these services immediately help healthcare payors, the ultimate beneficiaries are the patients who rely on high quality healthcare to be sustainable and affordable for the long term.”

“This is an exciting time for PHX as Performant creates a larger, more comprehensive company with enhanced financial resources and new services, strengthening our overall position in the market,” said Todd Roberti, Founder of PHX. “Through this merger, PHX not only continues its commitment to the self-funded marketplace, but also creates expanded opportunities to generate significant, additional savings for the self-funded community. While many companies claim to be innovators, we believe that this transaction will provide us with significant business intelligence for the combined company to drive leadership and advancement in the cost containment market.”

PHX has demonstrated strong revenue and earnings growth. After giving pro forma effect to the spinoff of the electronic claims payment subsidiary of PHX that will occur prior to the acquisition by Performant, in 2013, PHX grew pro forma revenue by 41% over 2012, to $42.8 million. Growth has continued in 2014 with pro forma revenue of $40.7 million during the nine month period ending September 30, 2014, compared to $31.0 million for the same period in 2013, representing 31% growth.

In addition to the upfront consideration, Performant has agreed to pay PHX stockholders a cash payment of up to $19.1 million if PHX generates specified levels of revenue for the year ended December 31, 2015. These revenue targets represent meaningful revenue growth over PHX’s 2014 pro forma revenues. If the targets are not met, no additional payments will be made.

Performant expects that the acquisition will be funded from the net proceeds of planned concurrent public offerings of convertible debt and Performant common stock. Closing of the acquisition is subject to successful completion at agreeable levels of the convertible debt and common stock financings and other customary closing conditions. Pro forma for the acquisition and contemplated financing, Performant expects the transaction to add $0.03 to $0.06 per share to its adjusted net income per diluted share in 2015 (adjusted net income defined as net income plus stock-based compensation expense plus amortization of intangibles plus deferred financing amortization costs plus financing transaction expense less tax adjustments assuming a marginal tax rate of 40%).

SunTrust Robinson Humphrey acted as financial advisor to Performant. Pillsbury Winthrop Shaw Pittman LLP acted as legal advisor to Performant. DLA Piper LLP acted as legal advisor to PHX.

Conference Call Details
Performant also announced that it will hold a conference call to discuss the transaction at 4:30 pm (Eastern Time) today. The conference call can be accessed by dialing 1-877-705-6003 (domestic) or 1-201-493-6725 (international). A telephonic replay will be available approximately one hour after the call and can be accessed by dialing 1-877-870-5176, or for international callers, 1-858-384-5517. The passcode for both the live call and the replay is 13600430. The telephonic replay will be available until 11:59 pm (Eastern Time) on February 4, 2015, and an audio webcast will be available for up to one year on Performant’s investor relations website.

Interested investors and other parties may also listen to a simultaneous webcast of the live conference call by logging onto the Investor Relations section of Performant’s website at investors.performantcorp.com. The on-line replay will be available on the website immediately following the call.

About Performant Financial Corporation:
Performant helps government and commercial organizations enhance revenue and contain costs by preventing, identifying and recovering waste, improper payments and defaulted assets. Performant is a leading provider of these services in several industries, including healthcare, student loans and government. Powered by their proprietary analytic platform and proprietary workflow technology, Performant also provides professional services related to the recovery effort, including reporting capabilities, support services, customer care and stakeholder training programs meant to mitigate future instances of improper payments. Founded in 1976, Performant is headquartered in Livermore, California.

About Premier Health Exchange:
PHX provides advanced network and cost management solutions for health plans that combine claim processing automation with professional services to deliver a timely, centralized approach to healthcare cost management. This approach results in a significant reduction in payment errors, appreciable improvement in the time needed to bring claims to resolution and in savings that substantially reduce the healthcare costs of its clients. PHX solutions are utilized by industry leading insurance companies, Taft-Hartley Funds, Health Maintenance Organizations (HMOs) and Third Party Administrators (TPAs).