|Investment date||July 2012 (Connolly), May 2014 (iHealth Technologies)|
Cotiviti is the market leader in healthcare analytics and payment accuracy solutions. Based in Atlanta, it employs over 3,000 people and was listed on the New York Stock Exchange (COTV) in May of 2016.
Advent International created Cotiviti through a 2014 merger of its portfolio company Connolly Inc. and iHealth Technologies, which it purchased from another private equity sponsor. Advent initially invested in Connolly in 2012, purchasing a majority stake in the provider of technology-enabled recovery audit services. Advent worked with senior management of the family-owned company to support scalable growth in its existing healthcare business and pursued a strategy for building or acquiring additional capabilities for its customers. In 2014, it identified iHealth Technologies as a leading adjacent provider of integrity services and sought a merger to expand its strong market position and customer relationships.
DRIVING GROWTH, PLANNING
Connolly began in 1979 as a family-owned operation focused on recovery audit services for retailers, and later sought out healthcare customers, finding increasing success in payment audit services for commercial and government payors. Additionally, Connolly had recently won a substantial Medicare overpayment recovery contract at the time of Advent’s 2012 investment.
“Management realized there was an incredible level of complexity in healthcare payments, and saw tremendous opportunity,” recalls John Maldonado, a managing partner in Advent’s Boston office. “Eventually healthcare became about 80% of its business, and revenues in the segment grew from about $20 million to upwards of $200 million.”
From Advent’s perspective, Connolly’s healthcare product suite offered significant growth potential. Operating partner Tom Ryan, former CEO of CVS Caremark, brought his experience with expanding operations in a complex market to help the company manage fast-paced growth and achieve greater scalability. Advent improved Connolly’s finance, legal, technology and human resources departments while professionalizing their legacy business processes. With existing leadership, they pursued a shared vision for sustaining rapid growth in the healthcare sector and pursuing strategic acquisition candidates.
Plans to make transformative, strategic investments using the Connolly platform began shortly after Advent’s original 2012 investment. Connolly had strong relationships with its blue-chip customer base and adding incremental capability to provide them greater value was crucial. So, in 2013, Advent and Connolly began a detailed strategic blueprinting exercise, identifying iHealth Technologies as the leader in pre-payment claims accuracy services. The products were highly complementary and addressed a key customer need: a holistic payment accuracy solution that could intervene during and after insurance claim adjudication. The merger was completed in May 2014.
“It wasn’t a typical merger where cost reduction was a key value driver” recalls Carmine Petrone, a partner in Advent’s New York office. “We focused on revenue synergies, building a world-class client service organization and building a stronger combined management team to accommodate the forecasted growth.”
The two companies’ minimal customer overlap created opportunities for cross-selling, and growth continued at an exceptionally rapid rate in an increasingly complex healthcare payment market.
Cotiviti CEO Doug Williams, who led iHealth at the time of the merger, saw an ideal opportunity.
“The legacies of Connolly and iHealth combined to create unique expertise that delivered more value to clients by enhancing their payment integrity capabilities. The strength of our product offerings and focus on customers afforded opportunity to grow and continue to build Cotiviti into a market leader,” he said.
THROUGH AN IPO
As the Cotiviti team gained post-merger momentum, it made strategic hires, increased research and development for new market segments, and integrated data and analytics capabilities. The newly formed company executed its value creation plan, increased identification and collection rates, expanded service lines, added clients and cross-sold existing clients. The debt-to-EBITDA ratio fell dramatically in the combined company’s first year given the strong free cash flow profile of the business. Advent and the team agreed Cotiviti was ready for a public offering.
In May 2016, Cotiviti started trading on the New York Stock Exchange as COTV. It priced 12.5 million shares at $19 a share, a rare 2016 IPO to price at the high end of its range. Shares doubled to $38 within eight months and as of March 6, 2018, are trading at 80% above the IPO price. The success of the public issue reflects Advent’s philosophy of taking great companies with market-leading ideas to the next stages of growth, investing expertise and capital to realize exceptional results.