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BFD Expert Voices - Health Tech Deals

BFD Expert Voices

UnitedHealth Group (NYSE: UNH) will go head to head with the U.S. Department of Justice today as the trial regarding its $13 billion acquisition of health care technology company Change Healthcare gets underway. 

What's happening: The DOJ has seven days to make its case on what it argues is an anticompetitive deal in nature. UNH-Change gets five days to defend the tie-up they first proposed 19 months ago.  

Zoom in: Leading up to the trial, the DOJ has alleged:

UNH-Change would create a monopoly by marrying Change's EDI clearinghouse and claims editing technology with assets sitting under United's Optum business (ClaimsXten).

United would gain unfair access to Change’s collection of software and services, now available to various health care players, for itself — along with access to any future innovation.  

The deal would further give UNH access to its rival health insurers’ competitively sensitive data.

The other side: An Optum official told Sarah in February that the company has had access to this kind of data for more than a decade — a fact the complaint ignores, the official said. 

Yes, and: Addressing concerns around the claims editing technology, Change has already agreed to sell ClaimsXten to TPG for $2.2 billion, pending completion of its deal with UNH. 

There are no contingencies that will prevent the ClaimsXten deal from going through if the court approves the UNH-Change merger, a person familiar with the matter says. 

The bottom line: The case before a federal judge in Washington, D.C., is the biggest test yet of the Biden administration's antitrust efforts in health care — and could have far-reaching implications for future data M&A plays, our Axios Vitals colleagues write. 

1 big thing: UnitedHealth-Change trial kicks off 

Illustration of the scales of justice hanging from a caduceus.

Zelis Healthcare, backed by Parthenon Capital and Bain Capital, has agreed to acquire Payer Compass for roughly $180 million, sources familiar with the matter tell Sarah. 

Why it's the BFD: Zelis aims to remove friction from transactions and simplify payment processes to drive more affordable and transparent health care, and acquiring Payer Compass furthers that mission. 

Deal details: Zelis CEO Amanda Eisel confirmed the transaction to Axios, but declined to comment on financials.

The deal is valued at around 18x the company's about $10 million of EBITDA, concluding a Triple Tree-run sale process, sources tell Axios. 

Exiting Payer Compass investors include Spectrum Equity and Health Enterprise Partners, which recapitalized the reimbursement technology and price transparency company in January 2019.

What they're saying: Many other players are tackling different aspects of what Zelis does, but Eisel thinks doing everything under one house is better.

"We very deliberately are growing across payment processing, [claims] communications, and payment integrity," she says. 

Yes, and: This isn't just a roll-up play — it's all about feeding continued growth, Jay Deady, who leads Zelis’ Claims Cost Solutions business, tells Axios. 

Zelis' strategy is centered around a "price, pay and explain" framework, which covers three key stakeholders: payors, providers and members. (Zelis got into the latter end-market through its 2021 acquisition of Sapphire Digital.)  

Zoom in: In adding Plano, Texas-based Payer Compass, Deady says Zelis gains the following: 

Contract management pricing capabilities that can be leveraged as a new separately licensed product. 

Pricing capabilities for 23 Medicaid states, where it doesn't currently play. 

Supporting services that will "exponentially expand" on the digital member engagement tools and tech inherited via the Sapphire acquisition.

SaaS-delivered capabilities that will open new doors among both the "Blues" health plans and national plans.

Catch up quick: In 2019, Parthenon merged two portfolio companies — Zelis Healthcare and RedCard — bringing in fellow Boston investor Bain Capital as a significant new shareholder. 

The deal valued the new entity at approximately $5.7 billion, with Parthenon remaining the largest shareholder and Bain assuming a stake of 35%-40%, sources told Sarah then. 

The marriage of the two companies accounted for pro forma EBITDA of about $300 million, including synergies, sources said then. Today, sources estimate Zelis is generating EBITDA in the $450 million zip code.

💭 Our thought bubble: If and when Change Healthcare successfully unloads its payment integrity business ClaimsXten to TPG (which remains contingent on the closure of its tie-up with UNH), the sale could have a domino effect on peers like Zelis. 

If the IPO markets reopen, we expect to see Zelis backers pursue a dual-track IPO and sale process. Either way, the company, characterized by sources as both a high-margin and high-growth asset — and operating at the nexus of health care, tech and payments — should attract strong interest. 

2. The BFD: Zelis picks up Payer Compass

Animated illustration of a compass with a syringe needle rotating haphazardly

Cornerstone AI, a data analysis and health care research startup, raised $5m in seed funding led by Healthy Ventures with support from Initiate Ventures. https://axios.link/3zirveS

Suvera, a U.K.-based developer of patient management software, raised £5m in seed extension funding in a round led by Morningside Ventures.

Assured Healthcare Partners closed its second fund with over $750 million of capital commitments, exceeding both its target size and initial cap.

New Mountain Capital agreed to acquire PerkinElmer's Applied, Food and Enterprise Services businesses, a carve-out from the seller's Discovery & Analytical Solutions' arm. The deal is valued at up to $2.45b.

H.I.G. Capital completed the acquisition of Barton & Associates, a Peabody, Massachusetts-based health care staffing company. 

3. Deals o' the day

Cornerstone AI named Healthy Ventures general partner Anya Schiess and Initiate’s Rowan Chapman and lana Dimkova to its board of directors.

Suvera named University College London chair of medicine Bryan Williams chief medical advisor.

4. It's Personnel

🥵 Happy Monday and hello August (and climate change)! 

📺 Situational awareness: Erin was on "PBS Newshour" on Friday to talk about the implications of Amazon's $4 billion One Medical buy. Check it out. 

🧳 Sarah is moving into an Airbnb in Williamsburg today while she contemplates moving back to Jackson Hole for the fall and winter. 

🔥 Thanks for reading Axios Pro Health Tech! Please ask your friends and family to sign up.

August 01, 2022

1 big thing: UnitedHealth-Change trial kicks off