HealthGrades deal driven by consumer-directed healthcare market
Vestar to tap into market by buying HealthGrades
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.”