TA Associates and Francisco Partners are jointly investing in Edifecs in a deal assigning the healthcare technology company an initial valuation just north of $1.42 billion, according to sources familiar with the matter.
The agreement includes an additional earnout consideration of up to $400 million, which could ultimately push Edifecs’ valuation to as much as approximately $1.82 billion, sources said. The earnout component is tied to investors achieving certain MOIC levels upon exit, they said.
TA and Francisco are set to own equal equity stakes in Edifecs, with the combined partnership comprising approximately 51 percent ownership in the company, sources said. Although either TA or Francisco could have each done the deal on their own, Edifecs’ founder-owner and CEO Gurpreet (Sunny) Singh preferred a joint-ownership structure, one person noted.
Edifecs’ GAAP EBITDA and revenue sit at approximately $77 million and $164 million, respectively, according to sources.
For Edifecs, the deal has been long in the works.
The Bellevue, Washington, company initially tested the market in 2019, retaining TripleTree to advise on a sale. After conversations waned, TripleTree restarted the process early this year, with deal talks further prolonged after the pandemic escalated in March.
Edifecs previously ran a formal sale process in 2015, hiring Deutsche Bank for financial advice at the time, the Wall Street Journal reported.
Founded by Singh in 1996, Edifecs acts as a data exchange, data sharing and data infrastructure platform between health insurance companies and outside parties – healthcare providers, clearinghouses and other insurers. The company employs more than 600 and serves more than 350 customers, including eight of nine national health plans, 25 of 37 BCBS licensees and more than 100 healthcare providers.
While its complicated business model and various niche offerings added to the challenge of getting a deal done, Edifecs operates in a stable and sticky arena – serving healthcare payers, which are slow to change – sources said.
In connection with the deal, TA and Francisco Partners will gain four board seats.
Ashutosh Agrawa and Jennifer Mulloy, managing directors at TA Associates, will join as directors. Ezra Perlman and Ali Evans, co-president and vice president of Francisco Partners, will also join the board.
While the first partnership transaction for TA and Francisco Partners, Agrawa previously worked at Francisco as a principal.
The transaction comes on the heels of a handful of healthcare technology deals this summer.
In relevant activity, Blackstone Group recently agreed to acquire The Burgess Group through HealthEdge Software. HealthEdge, whose software configures a health plan and adjudicates the claims that come out of it, commanded an approximately $730 million valuation upon Blackstone’s investment earlier this year.
For Francisco Partners, the investment follows its June sale of a minority stake in QGenda to ICONIQ Capital. The deal produced a $1 billion-plus valuation for the provider of healthcare-focused workforce management software, PE Hub wrote.
In one of private equity’s largest healthcare tech deals of the year, Leonard Green & Partners acquired a stake in TPG Capital’s WellSky in a $3 billion-plus deal.
DLA Piper and Karr Tuttle Campbell provided legal counsel to Edifecs on the transaction. Kirkland & Ellis provided legal counsel and Deutsche Bank served as financial adviser to TA and Francisco Partners.
Francisco Partners, TA and Edifecs declined to comment.
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Update: This report has been updated to clarify the potential earnout.