Rise of self insurance fueled growth at Valenz before sale to Kelso

Over the course of its six-year hold period, Great Point Partners grew portfolio company Vālenz Health significantly before selling it to Kelso & Company in a deal announced earlier this week.

GPP grew the medical payments specialist’s revenue roughly 30 percent per year for a total increase of more than 500 percent, thereby boosting its enterprise value by 700 percent, GPP managing director and head of private equity Noah Rhodes told PE Hub in an interview.

Valenz is a Phoenix-based medical billing company offering a suite of services, including claim flow management, bill review, payment integrity, revenue cycle management, eligibility compliance and more.

The rise of self-insurance in the healthcare sector fueled the growth of the company, Rhodes said.

“There is a macro trend that has been underway for a while, which is the shift to self-insurance,” Rhodes said. “More employers are deciding to self-insure and as that occurs, they need additional help in managing all the various medical expenses, administration and adjudication of claims that comes along with that.”

The growth strategy involved organic and inorganic means.

Under Greenwich, Connecticut-based GPP, Valenz completed eight tuck-in acquisitions, including Kozani Health in 2021, a Mesa, Arizona-headquartered provider of customized bill review sign-off and bill audit services to analyze pricing, coding and care provided to ensure appropriate payment.

In evaluating acquisitions, GPP was looking for businesses that would provide complimentary services that will benefit existing customers. That enhanced the attractiveness and the compelling nature of the business, Rhodes said.

“All things being equal, if you are a customer and if you can access more relevant services from one vendor, you’d rather work with that one vendor, and by doing so we can help provide a more cost effective solution for our customers,” he said.

The complementarity of the acquisitions also allowed for cross pollination of service offerings, in part expanding the customer base. “What happens is that when you acquire another vendor providing services to self-insured employer groups, it tends to be a very nice cross-selling opportunity where you can now sell your existing products to those new customers that you inherit as part of that acquisition and vice versa.”

Organically, Rhodes said focus was on migrating the salesforce from selling one product to being highly consultative personnel where the company would work with customers to identify their pain points and find tailored solutions for them. “We started to grow through the broker community who saw a lot of value in our offering,” he said.

In partnership with Valenz’s management team led by CEO Rob Gelb, the company expanded its distribution channel and crafted strategies to address market challenges of the self-insured industry, including the lack of transparency within medical costs and wide variances in reimbursement rates.

Valenz wasn’t the PE firm’s first exit in medical payments.

GPP previously invested in a business called Equian, a company that provides payment integrity services to payers in the medical space. With Equian, the firm said it completed eleven add-on acquisitions and increased EBITDA more than ten-fold before selling it to New Mountain Capital in 2015.

On how the exit process for Valenz unfolded, amid wide variations between the bid and ask because of the current state of the economy, Rhodes said: “I think good businesses are always attractive to buyers.”