TransUnion seeks buyer for healthcare business

PE-backed strategics and sponsors submitted initial bids last week, with at least one party bidding as high as $1.6bn in the first round, sources told PE Hub. 

Credit reporting agency TransUnion is seeking a buyer for TransUnion Healthcare, its healthcare revenue-cycle management subsidiary, according to five sources familiar with the matter. 

Centerview Partners is providing financial advice on the potential carve-out, with a process targeted at both PE-backed strategics and pure play sponsors, the people said. 

TransUnion did not return PE Hub’s requests for comment, while Centerview declined to comment. 

Outreach began in early August, and while the company began fielding first-round bids a week ago, where valuation will pan out in a potential transaction remains uncertain. 

Approximately $100 million of EBITDA was marketed for TransUnion Healthcare, with initial valuation guidance for the business in the $1.9 billion to $2.2 billion range, applying an around 20x to 21x multiple, some of the sources said. 

Valuation guidance has since dropped to around $1.6 billion to $1.9 billion, some of the sources said. Sources attributed this in part to a lower EBITDA figure that potential buyers are using to bid – which for some is closer to $70 million to $80 million, when excluding covid-adjusted add-backs and capex.

At least one initial bid came in at a $1.6 billion valuation while some others fell below that, some of the people said. Valuation could tick higher as the process progresses, one person speculated. 

“This is probably a 20x asset” off of the lower EBITDA range, one source said, while another countered, “the idea that this should be a 20x business is not obvious … it’s open for debate.”

Shares of TransUnion, which trade on the Nasdaq, have spiked nearly 28 percent year-to-date. The Chicago-based company, with a current market capitalization of approximately $24 billion as of Tuesday’s close, has been trading at an EV-to-EBITDA multiple upwards of 20x. 

Meanwhile, recent transactions for revenue cycle management companies in healthcare have varied. 

For example, EQT, CPPIB and Bain Capital-backed Waystar bought eSolutions from Francisco Partners last summer for between $1.3 billion and $1.4 billion, implying a more than 20x EBITDA multiple, PE Hub wrote. Waystar’s majority sale to EQT and CPPIB at a $2.7 billion value a year earlier was of a similar vein. The robust valuations for the two RCM companies are justified by high recurring revenue, renewal rates and sustained growth, one source noted. 

Conversely, Clearlake Capital carved out nThrive’s tech arm from Pamplona Capital for just over $1 billion in November 2020 at a low double digit multiple of EBITDA, PE Hub wrote.

TransUnion Healthcare has always played in a very different end-market and ran a different business model than its parent company – a global risk and information solutions company largely known for its consumer credits report. Resultingly, the RCM subsidiary has been called upon and thought about by private equity firms and strategic buyers for many years, sources said; Up until now, access to information has been minimal. 

Although TransUnion Healthcare in prior years has performed very well, growth and performance has been lackluster over the last couple years, sources said.

“During this period, the COVID period, the performance of the [TransUnion’s] Emerging Verticals in total has been muted a little because healthcare with the mid-single digits negative in the depths of the pandemic,” TransUnion CFO Todd Cello said in a Q2 earnings call.

That said, there is a perception among some buyers that under new ownership in which it is no longer a non-core unit, TransUnion Healthcare could thrive, sources said. To its benefit, there are few healthcare technology companies of this scale currently available for investment. 

One route TransUnion could take is to roll a minority investment, one source speculated. “Is the valuation lower than $2 billion with TransUnion taking a minority stake to go forward and get another bite?” the source said. The company has shown a liking for minority investments in companies which are subsequently built out. For example, TransUnion earlier this year invested a minority stake in Spring Labs, a blockchain-based fintech company. 

TransUnion Healthcare provides revenue protection solutions and identifies opportunities to enhance patient access and post-service revenue recovery efforts, it states on its website. Its RCM solutions aim to identify and maximize reimbursement opportunities throughout the revenue cycle to reduce bad debt.

The business serves more than 1,850 hospitals and health systems; helps more than 570,000 physicians and other US providers; and connects to 880 payers that cover 98 percent of insured lives in the US, it says.

TransUnion Healthcare has been around for many years, although its MedData and FHS (Financial Healthcare Systems) acquisitions in 2010 and 2011, respectively, were major catalysts for the company, one source noted. 

In more recent M&A activity, TransUnion Healthcare grew through two acquisitions in 2018.

The first was Healthcare Payment Specialists, which provides expertise and technology solutions to help medical care providers maximize Medicare reimbursements. It followed with the acquisition of Rubixis, a healthcare revenue cycle solutions company that helps providers maximize reimbursement from insurance payers.

TransUnion in 2018 also appointed David E. Wojczynski as president of Healthcare, replacing Gerry McCarthy. McCarthy left to lead eSolutions as CEO through its eventual sale to Waystar. Wojczynski, who joined TransUnion in 2010, was promoted from his position as senior vice president and COO of Healthcare.