R1 RCM (RCM) has agreed to acquire Cloudmed for $4.1 billion in stock. The deal includes assuming $851 million in debt held by Cloudmed. The transaction is expected to close in Q2 2022, subject to its approval by regulators and R1 shareholders.
Chicago-headquartered R1 provides revenue cycle management solutions to healthcare providers. Cloudmed, based in Atlanta, also serves healthcare providers with revenue intelligence solutions. For example, it helps hospitals recover underpaid or unidentified revenue opportunities.
Cloudmed serves more than 3,100 healthcare providers across the U.S., including 47 of the top 50 hospital systems in the country. It recovers more than $1.5 billion in additional revenue opportunities for its clients annually. It analyzes medical insurance models, medical records, and payment data to find additional revenue for clients.
R1 CEO Joe Flanagan commented, “This transaction accelerates our strategy to build the most scalable, flexible, and integrated platform for the revenue cycle and consumer engagement in healthcare”.
Strategic and Financial Benefits of the Deal
RI says its solutions help improve financial performance for clients and promote patient satisfaction. The company expects the Cloudmed acquisition to both enhance its offerings and diversify its customer base. It also expects the transaction to be accretive to earnings in the first full year. R1 expects the transaction to unlock $85 million in cost synergies in the third year. Additionally, R1 expects the acquisition to generate significant revenue synergies over time.
Shareholding and Management Structure
R1 is acquiring Cloudmed from private equity firm New Mountain Capital. Once the transaction has been completed, current R1 shareholders will own 70% of the combined company. The remaining 30% will go to Cloudmed owners.
R1 plans to enter into a lockup agreement with Cloudmed shareholders. The company is considering a lockup period of six to 18 months, subject to certain conditions.
The boards of both companies have already approved the deal. If the deal goes through, R1 CEO Joe Flanagan will serve as the CEO of the combined company and Cloudmed CEO Lee Rivas will serve as President. Cloudmed owner New Mountain Capital will also get three seats on the board of the combined company.
Analysts’ Take
Bank of America Securities analyst Michael Cherny recently reiterated a Buy rating on R1 RCM stock and raised the price target to $31 from $28. Cherny’s new price target suggests 34.67% upside potential.
Consensus among analysts is a Strong Buy based on 7 Buys. The average R1 RCM price target of $30.83 implies 33.93% upside potential to current levels.
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