R1 RCM agrees $4.1bn all-stock deal for Cloudmed

March 2022 | DEALFRONT | PRIVATE EQUITY & VENTURE CAPITAL

Financier Worldwide Magazine

March 2022 Issue

Healthcare revenue management firm R1 RCM Inc has agreed to acquire rival Cloudmed in an all-stock deal worth about $4.1bn, including debt of around $857m.

The deal is expected to close in Q2 2022, subject to shareholder and certain regulatory approvals and has been unanimously approved by the boards of both companies.

The acquisition is expected to offer R1 significant financial benefits. Executives expect the deal to be accretive to R1’s per-share earnings in the first full year post-closing. R1 expects cost savings of $85m by the end of year three and $98m at full run-rate, as well as significant revenue savings over time, according to a press release announcing the deal.

Cloudmed, which is backed by private equity firm New Mountain Capital, partners with over 3100 healthcare providers in the US and recovers over $1.5bn of underpaid or unidentified revenue for its clients annually. Upon the deal’s closing, R1 shareholders will own about 70 percent of the combined company on a fully diluted basis and Cloudmed equity holders will own the rest. Cloudmed equity holders will enter into an 18-month lockup agreement, subject to partial early release after six months under certain circumstances.

R1 has made several acquisitions in the past two years to build its capabilities and technology in the revenue cycle management (RCM) space. Last year, the company acquired patient financial engagement company VisitPay for $300m in cash, a deal which gave R1 a platform that streamlines the healthcare financial experience for consumers and access to major health system partners that already use it. In 2020, R1 bought health IT giant Cerner’s revenue cycle business for $30m.

“This transaction accelerates our strategy to build the most scalable, flexible, and integrated platform for the revenue cycle and consumer engagement in healthcare,” said Joe Flanagan, president and chief executive of R1. “Our combined solutions, including enhanced automation capabilities, will further transform the patient experience and drive continued improvement in our customers’ financial results. I look forward to working with Cloudmed’s CEO, Lee Rivas, and the entire Cloudmed team whose additive talent and expertise will help us continue to optimize outcomes for healthcare systems and create value for all our stakeholders.”

“Cloudmed solves a critical problem in the healthcare system by helping healthcare providers get paid for the services they deliver,” said Lee Rivas, chief executive of Cloudmed. “By combining with R1, we will be creating a best-in-class platform with market-leading capabilities to drive improved outcomes for our customers, among the leading healthcare providers in the country. R1 shares our values and focus on innovation, which is why we are so excited about joining them to drive value for healthcare providers.”

“We believe the combination of Cloudmed and R1 creates a clear market leader for technology and data powered revenue management for healthcare providers,” said Matt Holt, managing director and president, private equity of New Mountain Capital. “We are excited to support the long-term vision of the combined company to modernize the US healthcare sector.”

R1 has more than 900 clients nationally serving more than 27,000 providers in revenue-cycle management. Cloudmed serves more than 400 health systems in the country in revenue intelligence, including 47 of the top 50 hospital systems, according to the statement announcing the deal.

Mr Flanagan will serve as chief executive of the combined company, and Mr Rivas will serve as president.

New Mountain Capital invested in Cloudmed in December 2017 when the company was known as Revint Solutions. The firm facilitated the merger of Revint with IMA Consulting.

Richard Summerfield