A large private equity firm asked Health Business Group to assist in the commercial due diligence of a core information technology provider for health plans.
The target was a leading player with smaller health plans and was aggressively trying to gain ground with larger customers but encountering entrenched competitors. The target had a compelling offering that matched up well with competitors along the areas of benefit administration, care management and member engagement. In addition the target offered a more modern, modular system design that provided superiority in terms of performance, flexibility and cost. Health Business Group was asked to focus efforts on validating the aggressive revenue plan necessary to justify the deal terms and valuation.
We provided input into key questions upon which valuation would depend:
- From the customer perspective, how does the target’s offering compare to other direct and indirect competitors?
- How satisfied are existing customers? What are the key sources of satisfaction and dissatisfaction?
- What industry trends will drive new product requirements (e.g., ICD-10, new HEDIS reporting requirements, new payment models)?
- How do prospective customers view the target? How well-positioned is the company to move up market?
- What is the decision-making and contracting process? Who are the decision makers and influencers? How is the process conducted? What is the timeline?
- What are typical budgets and price points?
Based upon management meetings, industry conferences, and discussions with health plan management across marketing, operations, IT, and provider services domains, the due diligence findings showed significant upside revenue potential but a longer sales cycle than projected. The transaction was ultimately completed but at a lower valuation.