Revenue-cycle management company R1 RCM on Monday said it plans to acquire Cloudmed in an all-stock transaction that values Cloudmed at roughly $4.1 billion.
Cloudmed uses artificial intelligence and automation to analyze medical records, payment data and medical insurance models for revenue-cycle management. The company has more than 3,100 healthcare provider customers.
The acquisition fits into R1’s vision of creating an end-to-end platform for managing revenue cycle for providers and engaging patients around payment.
“We have been very deliberate and very consistent in terms of our excitement around the long-term automation potential that exists in this industry,” said Joe Flanagan, R1’s president and chief executive officer, Monday at a conference. “This transaction significantly increases our data footprint and we are positioned very well for meaningful innovation in and around data.”
Cloudmed’s data will accelerate R1’s work in machine learning, which requires data to create accurate models, Flanagan said at J.P. Morgan’s annual healthcare conference—which is virtual for the second year due to the COVID-19 pandemic.
After the transaction closes, R1 shareholders will own roughly 70% of the combined company. Cloudmed equity holders will own roughly 30%.
Cloudmed is a New Mountain Capital portfolio company and is privately held.
R1 officials expect the transaction to be accretive to R1's earnings per share in the first full year after closing the deal with $85 million in cost synergies by the end of the third year. Flanagan will continue to serve as CEO of the combined company and Lee Rivas, Cloudmed's CEO, will serve as the company's president.
R1 after the acquisition will increase the size of its board of directors to include three new members nominated by New Mountain Capital.
The deal is expected to close in 2022's second quarter.
The acquisition will expand R1's AI and automation capabilities. Flanagan has previously said R1 seeks to differentiate itself from other revenue-cycle management vendors through its technology and automation efforts, which use robotic process automation, machine learning and natural language processing.
By year-end 2022, Flanagan said R1 will have automated 100 million previously manual tasks, contributing an estimated $45 million in adjusted earnings before interest, taxes, depreciation and amortization.
The Cloudmed acquisition of VisitPay, a company that sells patient billing tools, last year and of SCI Solutions, a developer of scheduling and other patient engagement tools, in 2020. It's part of a growing number of mergers and acquisitions in digital health, with 203 deals reported in 2021's first three quarters, according to Digital Health Business & Technology. That's up from 132 M&A deals in the same period of 2020.
R1 in November posted $379.7 million in revenue for 2021's third quarter—the most recent quarter for which it's issued earnings results—up 23.6% from the same period the year prior, and $31.1 million in operating income, up 193.4% year-over-year.
The market for revenue-cycle management companies is growing as payment continues to become more complicated for providers, Flanagan said at the J.P. Morgan conference. Providers are navigating a shift from fee-for-service to value-based payment models, as well as a consumer-driven demand to make it more convenient for patients to pay out-of-pocket costs and copays digitally.
“The complexity is only increasing,” he said.