In a strong statement about the growing importance of healthcare at home to the U.S. healthcare system, Chicago-based Allscripts Healthcare Solutions Inc. has invested $70 million toward the creation of a new joint venture with Netsmart, an Overland Park, Kansas tech company focused on software for behavioral health providers. San Franciso's GI Partners, an equity investment firm, will be a minority owner of the new venture.
GI Partners is contributing $338,828,140.00 but Allscripts' entire Homecare division will become part of the new company, which, in addition to the $70 million, makes it the larger investor of the two. A small equity position has been set aside for Netsmart management, keeping the ownership of both Allscripts and GI just under 50%. Netsmart's CEO Mike Valentine will continue as CEO of the joint venture, which will continue to be known as Netsmart.
Netsmart will fold Allscripts' Homecare business — with solutions for business, clinical and scheduling functionality for home health, hospice and private duty — into the Netsmart CareFabric suite of business solutions, which includes electronic medical record platforms, interoperability platforms, care coordination platforms and mobile platforms. The merger will allow Homecare clients to use Netsmart’s solutions, services, investments in business efficiencies and care coordination.
All of Allscripts' Chicago and Raleigh, NC staff will remain with the new company. Plus, Valentine said in an interview that the company plans to hire 250-300 people at its Overland Park headquarters this year.
Parties involved in the deal also say the Homecare operations will make Netsmart the largest tech company focused solely on aspects of health care typically delivered outside of hospitals or physician's offices. The company is expected to have more than $250 million in annual revenue and more than $60 million in annual operating income.1 The Overland Park company previously was owned by San Francisco-based private equity firm Genstar Capital.
We spoke with Marie Finnegan and Jason Banks, Allscripts' Director of Solution Management and Area Vice President, respectively. In our conversation they elaborated on the meaning of the new join venture for Allscripts clients and for the healthcare and hospice at home industry in general.
1 According to an official company statement, Allscripts expects the transaction to add approximately $150 million in 2016 revenue, be accretive to 2016 Adjusted EBITDA and neutral to non-GAAP earnings per share in 2016. Additional details relating to the transactions can be found in the filing with the Securities and Exchange Commission on Form 8-K, located on the Allscripts Investor Relations page. (Adjusted EBITDA is a non-GAAP measure and consists of GAAP net income (loss) as reported and adjusts for: deferred revenue and other adjustments; depreciation and amortization; stock-based compensation expense; non-recurring expenses and transaction-related costs; non-cash asset impairment charges; interest expense and other, net; equity in earnings of unconsolidated investments; and tax provision (benefit).)
Allscripts will consolidate 100% of the joint venture revenue, including Netsmart and the Allscripts Homecare business into its financial statements after the transaction closes, in the late April timeframe. The size of the joint venture is more than $250mm on a trailing 12 month basis, as disclosed in the press release.
The $52 million is Allscripts cash equity contribution to the joint venture, included in the $70 mm in the press release, the remainder of which are approximate cash amounts to cover expenses of the joint venture.
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