Health Tech: Suitors like One Medical

July 06, 2022

Axios Pro Exclusive Content

Sarah Pringle

🐪 Happy hump day, Health Tech readers.

Situational awareness: Convicted felon and so-called pharma bro Martin Shkreli has become our latest newsletter rival with an edition on Mark Cuban’s digital pharmacy, Cost Plus Drugs.

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Illustration: Allie Carl/Axios

Premier Inc. engaged banks earlier this year to re-explore strategic alternatives and manage potential take-private conversations, sources tell Sarah.

Why it matters: Sponsors are said to have called on Premier on and off over the years because it’s cheap on a relative basis — but with the finance markets falling apart, sources are wary that anything gets done.

  • Premier declined to comment, stating in part: “As always, our Board and management team are committed to acting in the best interests of Premier and our stockholders.”

What’s happening: Sources say JPMorgan and BofA were hired this year to handle conversations with third parties, with one person confirming that management meetings were held with private equity more than a month ago.

  • It’s unclear how formal the process was or remains, or if talks with potential acquirers are dead.
  • It’s possible a piecemeal sale could be considered, again, sources suggested, as was the case during Premier’s 2019 process.

Context: Premier operates two segments: a group purchasing organization (reported as supply chain services) and a compilation of health care technology assets (professional services).

  • Its core GPO business is stable and generating a lot of cash flow, but slower growth, whereas the hodgepodge of tech assets is growing fast but burning cash.
  • With two diverging value propositions, there are different logical buyers for the two units, including potential strategic acquirers of the tech piece, one source suggests.

What they’re saying: Premier is among public health tech companies identified as ripe for “strategic alternatives optionality,” an analyst report published by SVB Securities in late June says.

  • Historically, the question of, “how much value-add is there in a GPO?” has deterred some interest in Premier, one source tells Sarah.
  • It’s not always clear that hospitals can extract more savings via GPO relative to what you can do on your own, the source explains.

Yes, but: Another source adds that outsourcing to GPOs has more recently increased with hospitals looking outward to handle supply chain disruption. “There’s more value to it than folks thought before.”

By the numbers: Premier is projecting $1.41 billion to $1.45 billion in total net revenue for fiscal 2022, about $1 billion of which comes from the GPO business (reported as supply chain services).

  • $490-$500 million of adjusted EBITDA for the year is anticipated, and again, much of that comes from the GPO business.
  • Shares are down more than 12% YTD, trading near $35.94 today, with a market cap of about $4.2 billion.

Catch up quick: Centerview Partners and BofA were engaged a few years back to run a formal process for Premier, but the process was put on hold as the company’s ownership structure was considered, Sarah wrote in early 2020.

  • Its former structure was among impediments to a deal getting done last time around, one source notes. In August 2020, Premier completed a corporate restructuring that eliminated its dual-class structure and simplified ownership.

The intrigue: Premier since that time also promoted president Michael J. Alkire to CEO, succeeding retiring CEO Susan DeVore. (And, reshuffling in the C-suite can sometimes open the door for exploring strategic alternatives.)

The bottom line: Unless it’s a so-called boomerang situation (like CD&R buying back Covetrus or TPG buying back Convey Health), health tech take-privates are few and far between this year so far, with the math (and debt markets) proving tough to make work. TBD if Premier bucks that trend.

JPM and BofA representatives did not return requests for comment.

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