Friday, August 5, 2011

Health IT leader Emdeon could go private again

Two years after making its debut as a publicly traded company, Nashville-based Emdeon could return to being closely held if buyout talks said to be going on between the company and private-equity firm Blackstone Group result in a deal.

Several Wall Street analysts agreed that going private would make sense for Emdeon, whose earnings and stock price have lagged since it went public.

Growth opportunities for the company are limited because of its already high market penetration — Emdeon processes almost half of all electronic medical bills nationwide.

Revenues and earnings, meanwhile, have been hurt by a drop in transaction volume as consumers use medical services somewhat less due to the economic downturn nationally. And acquisitions that Emdeon has made to diversify its business amid that sluggish economy have had no more than a modest impact on earnings.

Going private would allow Emdeon to restructure its operations and add new products and services without the scrutiny of public investors, said Leo Carpio, an analyst at Caris & Co.

“They want to be able to focus on longer-term growth of the platform without having to worry about delivering near-term earnings expectations,” said Carpio, who earlier this year named Emdeon the top takeover target within health-care information technology companies.

On Wednesday, Emdeon’s stock increased 22 percent on a Wall Street Journal report that private equity group Blackstone was in advanced talks to buy the company for more than $3 billion including debt, although there was no guarantee a deal would happen.

On Thursday, Emdeon’s stock eased off 3.8 percent, or 61 cents per share, to a price of $15.49 per share.

Tommy Lewis, an Emdeon spokesman, said the company doesn’t comment on market rumors.

A spokeswoman for Blackstone, whose local interests include a significant stake in newly publicly traded hospital chain Vanguard Health Systems, didn’t return a call.

In addition to being a claims clearinghouse, Emdeon offers services such as mailing patients’ statements and verifying insurance eligibility.

The company made at least four acquistions last year, including an expansion of its revenue cycle management business and services to help hospitals qualify patients for government-assistance programs.

Ryan Daniels, an analyst with William Blair & Co. in Chicago, said the more than $3 billion kicked around as a sales price would be a fair value for Emdeon. He considers the company a good takeover target because of its cash flow, recurring revenues, and what he called a great management team.

The private equity firms General Atlantic LLC and Hellman & Friedman LLC owning 54 percent and 13 percent, respectively, of Emdeon would make a transaction easier to complete as long as General Altantic approves the deal, Daniels said in a research note.

Including Class B shares, the two investors own roughly 74 percent of Emdeon.

Sean Wieland, an analyst with Piper Jaffray, said because of its limited organic growth, Emdeon has under-performed peers in a health-care IT niche that’s all about growth.

“What investors want to see is the business growing on its own without a dependency on acquisitions,” Wieland said. “This potential transaction with a private equity firm would make some sense because they haven’t been getting the valuation they felt they deserve.”