A joint venture between San Francisco-based private equity firm GI Partners and Chicago-based healthcare IT firm Allscripts Healthcare Solutions (NASDAQ: MDRX), agreed to acquire Netsmart Technologies, Inc. from San Francisco-based middle-market private equity firm Genstar Capital. The $950 million deal will create the largest technology company exclusively dedicated to human services and post-acute care.
Genstar acquired Netsmart in 2010 from Bessemer Venture Partners and IVP, and is said to be making a 4.4x return on its exit.
The Allscripts Homecare software business unit, which serves more than 30,000 home health, private duty and hospice clinicians in the U.S., Guam and Puerto Rico, will be merged with Netsmart, whose clients span 23,000 organizations, including more than 450,000 care providers and more than 40 state systems. The combined company will focus on enhancing human services, post-acute care and outcomes, helping providers respond to evolving compliance and regulatory demands, and improve efficiency and performance.
On a pro-forma basis, excluding impact from any purchase accounting effects, the combination creates a company with more than $250 million in annual revenue and more than $60 million in annual operating income. Upon completion of this transaction, the combined business will operate as Netsmart and be based in its current headquarters in Overland Park, Kansas. Mike Valentine, Netsmart’s CEO, will lead the combined company.
“We are thrilled to join forces with Netsmart and GI Partners to immediately establish a technology solutions leader in the strategic human services and post-acute care market,” said Paul Black, CEO of Allscripts. “Creating a software and services platform for caregivers to manage patients through the combined realities of post-acute care and mental health is absolutely essential to achieving the value-based care goal of healthy communities and populations. This joint venture finally brings scale with a depth and breadth of solutions required to navigate the immense opportunities in this growing global marketplace.”
“This transaction marks an exciting new chapter for both Netsmart and Allscripts clients and associates,” said Valentine. “The combination of Netsmart’s success in the health and human services industry with Allscripts renowned home health and hospice technology catapults us to immediate leadership at a pivotal time in healthcare. Today Netsmart is the most widely adopted post-acute EHR and, through this new partnership, we will have unprecedented scale, a complete solutions platform, an unrivaled distribution channel and unique opportunities to expand services into the Homecare client base.”
Allscripts will contribute 100% of its Homecare business, plus approximately $70 million in cash to the joint venture. This consideration will be combined with the cash investment from GI Partners plus third-party debt financing to consummate the acquisition of Netsmart. Allscripts will be the largest owner of the joint venture and expects to consolidate the entity for financial reporting purposes. The debt of the joint venture will be non-recourse to Allscripts and its wholly-owned subsidiaries, and the Company’s existing credit facilities will remain in force with significant remaining available liquidity thereunder.
“The human services and post-acute segments are critical to the long-term value-based care business strategy of our clients,” said Rick Poulton, Allscripts president. “This joint venture creates value by unleashing the full potential of our homecare asset, and we believe this business will flourish under the focused stewardship of Mike Valentine and his team.”
The transaction is subject to the expiration or termination of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act and is expected to close in late April. Allscripts management expects the transaction to add approximately $150 million in 2016 revenue, be accretive to 2016 Adjusted EBITDA and neutral to non-GAAP earnings per share in 2016.
Houlihan Lokey and UBS Investment Bank acted as financial advisors to GI Partners. Financing for the transaction is being provided by UBS Investment Bank. Netsmart was advised by JPMorgan and William Blair.
GI Partners, founded in 2001, is a leading middle market private equity firm based in San Francisco. The firm currently manages over $12 billion in capital commitments through private equity and real estate strategies for recognized institutional investors across the globe. GI Partners’ private equity team is active in a number of key sectors, including Technology, Media & Telecommunications, Healthcare, Retail & Leisure, and Business & Financial Services.
Genstar Capital is a leading private equity firm that has been actively investing in high quality companies for more than 20 years. Based in San Francisco, Genstar manages funds with total capital commitments of over $5 billion and targets investments focused on selected sectors within the healthcare, software, financial services, and industrial technology industries.