Dive Brief:
- New Mountain Capital is offering to buy out other investors in revenue cycle management giant R1 RCM for $13.75 a share in cash.
- The private equity firm’s offer represents a 24% premium to R1’s closing price on Friday, but could be undervaluing the company, analysts said.
- New Mountain, which owns about a third of R1’s shares, has been engaged in discussions with other investors on a potential transaction for several weeks, according to a Monday filing with the Securities and Exchange Commission.
Dive Insight:
New Mountain has been exploring a buyout of R1 since at least late January, when the PE firm first shared its proposal to acquire R1’s outstanding shares with the company.
The nonbinding offer was first made public on Monday with the filing, which also asks R1 for a waiver of standstill restrictions. A waiver would allow the PE firm to work with R1’s board (and other potential investors) on a transaction.
New Mountain is open to nonprofit hospital operator Ascension Health and PE firm TowerBrook Capital Partners, which together own 30% of R1’s outstanding shares, participating in an eventual transaction, according to the SEC filing.
There has been no final agreement on terms, but New Mountain believes a deal is “in the best interests” of R1 and its customers.
Shares in R1 have been depressed in the public markets since late 2022, driving speculation that the company could be better off as a privately owned operator. Analysts with Jefferies said in early February that the company was an attractive target for a private equity buy.
“The news of public recognition of R1 RCM’s valuation dislocation does not surprise us,” wrote Leerink Partners analyst Michael Cherny in a note on Monday. R1’s stock has been pressured by public complaints from a customer, Pediatrix, which severed ties with the RCM services vendor in October after problems migrating to the software. That issue is mostly resolved, Cherny noted.
Still, New Mountain’s proposed price of $13.75 a share undervalues RCM, given the company’s long-term earnings projections, TD Cowen analysts said.
Given the SEC filing doesn’t mention R1’s board accepting the offer, “we could infer that the Board likely agrees with our position that this offer doesn't value RCM appropriately,” according to a Monday note led by analyst Charles Rhyee.
R1 RCM's stock has fallen as customers terminate agreements; other headwinds
Shares in R1 jumped 28% in Monday morning trade after New Mountain’s offer was made public. R1 did not respond to a request for comment.
New Mountain’s offer comes on the heels of R1’s recent acquisitions, including a $675 million buy of Acclara, a modular services business, from health system Providence last month. R1 also acquired revenue intelligence company Cloudmed for $4.1 billion in 2022.
R1 says it is the largest publicly traded company focused on revenue cycle management for healthcare providers. The company brings in half of its revenue from Ascension and fellow nonprofit hospital system Intermountain Healthcare, according to a filing in December.
