ZirMed, backed by Sequoia, heads to the market

ZirMed, the healthcare-IT provider backed by one of Silicon Valley’s most prominent venture firms, is about to kick off a process that could produce a billion-dollar transaction, VCJ has learned.

The Sequoia Capital-backed company has turned to William Blair & Co for financial advice, according to three sources, one of whom said the process is poised to launch imminently. The process for the Louisville, Kentucky, company will be limited to a select group of buyers, another of the sources said.

In response to inbound interest from both strategics and private equity, William Blair has been selected to evaluate strategic alternatives, including a sale or recapitalization, a ZirMed representative confirmed. An IPO is not off the table, the representative said.

ZirMed is projecting adjusted pro-forma EBITDA north of $45 million for 2017, two sources said. Valuation expectations for the business are high, they said, estimating the asset could fetch a multiple of EBITDA upward of 18x or even beyond 20x.

One reason for the excitement around ZirMed, sources said, is that it’s a true software-as-a-service vendor, a model characterized by recurring revenue streams. The company’s solid growth profile and strong client retention have added further appeal, the sources said.

Founded in 1999, ZirMed provides cloud-based revenue-cycle-management services, including eligibility verification, revenue identification, claims and accounts-receivable management as well as cost and utilization services. Its services help providers overcome challenges as the reimbursement model continues to shift toward a system based on value, while patients take on more financial responsibility.

The company serves more than 300,000 providers and 8,000 healthcare organizations.

ZirMed’s rivals include certain offerings of Change Healthcare, the revenue-cycle firm that earlier this year sealed its multi-billion-dollar merger with McKesson’s technology business. The company is jointly owned by McKesson, with a 70 percent stake, alongside Change stockholders Blackstone and Hellman & Friedman.

ZirMed in May 2014 acquired Intelligent Healthcare, a data-driven population health management firm. The non-core unit was sold to Dallas analytics firm Koan Health earlier this month. Terms weren’t disclosed, but regional press said the business accounted for less than 1% of ZirMed’s revenue.

Sequoia, among the most active investors in startups with $1-billion-plus valuations, has had its fair share of healthcare wins. For instance, the VC firm backed cancer-drug startup Stemcentrix, which pharma giant AbbVie last year agreed to buy in a deal that could ultimately be valued at as much as $10.2 billion.

A Sequoia representative declined to comment, while a William Blair spokesperson did not return a request for comment.

Action Item: Reach out to Sequoia’s Doug Leone at leone@sequoiacap.com

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