June 20, 2019

PE Deal of the Year: Athenahealth

The $5.7 billion take-private of healthcare information technology company Athenahealth Inc. by Veritas Capital Fund Management LLC and Evergreen Coast Capital Corp. combined the two hottest sectors of the year, tech and healthcare, while overcoming significant complexities posed by the role of a shareholder activist.

The deal, which was about 1 1/2 years in the making, created a market-leading healthcare information technology provider of a network of customers, products and solutions, despite challenges.

Veritas Capital combined Athenahealth with Virence Health, the former GE Healthcare Value-based Care assets that it acquired in 2018. Former Virence CEO Bob Segert is leading the combined company, known as Athenahealth, with headquarters in Watertown, Mass.

Adding to the complications of the deal, the former workforce management unit of Virence Health was carved out as a separate company under the API Healthcare name.

Working with legal adviser Schulte Roth & Zabel LLP, Veritas negotiated with Evergreen, preferred investors and debt financing sources, while working with Athenahealth to prepare necessary filings and close the transaction.

For Veritas, the deal marked the largest single transaction for the 27-year-old New York firm, according to FactSet data. The largest deal by Veritas Capital prior to Athenahealth was its 2015 acquisition of StandardAero Business Aviation Services LLC for $1.8 billion.

Shareholders OK'd the deal on Feb. 7 following the Nov. 12 merger announcement.

Elliott Management Corp. turned its attention to Athenahealth in May 2017 with a traditional activist campaign that urged the company to consider strategic opportunities. In early 2018, the company named former General Electric Co.(GE) CEO Jeffrey Immelt as independent chairman, and in June former CEO Jonathan Bush left his post, thereby removing a potential hurdle to a sale.

The Deal reported last September that Elliott was working on an offer to buy Athenahealth, and it initially teamed up with Bain Capital LLC to do so. Elliott reported an 8.9% stake in Athenahealth last year.  Elliott Management contributed about $1.1 billion in equity in the partnership, according to sources. The infusion may represent roughly half the equity investment in the deal.

The deal was probably the largest example of how the traditionally activist hedge fund has shifted from its bread-and-butter activist activities (pushing companies into M&A or other share-price-improving actions) into the world of private equity, following its move in 2016 to set up a Menlo Park, Calif.-based private equity team, Evergreen Coast Capital Partners. According to one banker, by setting up a PE unit, Elliott is saying "If we can't break you, we can take you out."