HealthGrades deal driven by con­sumer-di­rected health­care mar­ket

Ves­tar to tap into mar­ket by buy­ing HealthGrades

Modern Healthcare - - News - Mau­reen McKin­ney

Ves­tar Cap­i­tal Part­ners’ de­fin­i­tive agree­ment to pur­chase on­line health­care rat­ings com­pany HealthGrades for close to $300 mil­lion was likely driven by a de­sire to tap into the grow­ing con­sumer-di­rected health­care mar­ket, an­a­lysts say.

An af­fil­i­ate of Ves­tar agreed to pur­chase all out­stand­ing shares of HealthGrades, Golden, Colo., for about $294 mil­lion, or $8.20 per share, roughly 29% more than the July 27 clos­ing price of HealthGrades’ stock, ac­cord­ing to a joint state­ment re­leased July 28. The af­fil­i­ate will be­gin the all-cash trans­ac­tion no later than Aug. 10, and the deal is ex­pected to close some­time in Septem­ber, a Ves­tar spokes­woman said.

Both HealthGrades and Ves­tar of­fi­cials de­clined to com­ment on the deal ahead of the clos­ing.

HealthGrades’ rat­ings and other re­sources are an in­creas­ingly valu­able re­source for pa­tients look­ing to ac­tively man­age their own care and health­care costs, said De­bra Fi­akas, an an­a­lyst at New York-based Crys­tal Eq­uity Re­search.

“HealthGrades has been a will­ing par­tic­i­pant in past con­ver­sa­tions about ex­pand­ing their foot­print in the con­sumer-di­rected health­care mar­ket be­cause that’s what’s driv­ing their busi­ness,” Fi­akas added.

For in­stance, pa­tients can use HealthGrades on­line search tools to find physi­cians that meet na­tional qual­ity stan­dards or to de­ter­mine how the cost of a par­tic­u­lar pro­ce­dure varies from re­gion to re­gion.

“I think this com­pany has al­ways been re­cep­tive to over­tures, and they were think­ing strate­gi­cally about where they wanted to be in the long term,” Fi­akas said. “They have a lot of ideas in the pipe­line, and these things have a lot of rev­enue po­ten­tial.”

Fi­akas also said HealthGrades’ lead­ers have run the com­pany for prof­itabil­ity and that a fo­cus on stay­ing in the black could have in­hib­ited their abil­ity to grow.

Jack­son Spears, an an­a­lyst at Gar Wood Se­cu­ri­ties, Mil­wau­kee, said the deal was likely prompted, at least in part, by the po­ten­tial suc­cess of Pa­tient Di­rect Con­nect, an on­line ser­vice that links users di­rectly to a cen­ter that can ar­range physi­cian ap­point­ments, stream­lin­ing the sched­ul­ing process and in­creas­ing provider busi­ness, he said.

Al­though it is still un­clear how Ves­tar in­tends to in­te­grate HealthGrades, Sean Jack­son, an an­a­lyst at Avon­dale Part­ners, Nashville, says the eq­uity firm could choose to in­cor­po­rate it into Press Ganey As­so­ci­ates, a South Bend, Ind.-based com­pany that spe­cial­izes in cus­tomer feed­back and sat­is­fac­tion tools. Ves­tar acquired Press Ganey in early 2008. “We don’t know any­thing for sure, but I can see how it would fit within that frame­work,” he said.

The deal could be a wind­fall for some top ex­ec­u­tives at HealthGrades. As of April 20, Kerry Hicks, HealthGrades’ founder, chair­man and CEO as well as a di­rec­tor, owned 13.8% of the com­pany, roughly 4.4 mil­lion shares, ac­cord­ing to Se­cu­ri­ties and Ex­change Com­mis­sion fil­ings. David Hicks, Kerry’s brother and an ex­ec­u­tive vice pres­i­dent, owned 5.4% of the com­pany, or roughly 1.7 mil­lion shares. Allen Dodge, ex­ec­u­tive vice pres­i­dent and chief fi­nan­cial of­fi­cer, owned 2.6% of the com­pany, or about 800,000 shares.

The an­nounce­ment of the agree­ment came as HealthGrades re­ported $15.6 mil­lion in sec­ond-quar­ter net in­come, up $3.2 mil­lion, or 25%, from $12.5 mil­lion in the year-ago pe­riod. The deal is sub­ject to cus­tom­ary reg­u­la­tory ap­provals.

Jack­son: “Can see how it would fit within that frame­work.”

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