Firstsource makes $330 million US acquisition

The leading Indian BPO significantly grows its annual turnover by acquiring MedAssist, a company that helps US healthcare providers manage revenues.
Firstsource Solutions, an Indian business process outsourcing firm, is to acquire US-based MedAssist Holding for $330 million.

MedAssist's revenues for calendar 2006 were $99 million. At the acquisition price of $330 million, this translates to a revenue multiple of 3.33 times. For the most recent fiscal year ended March 2007, FirstSource had revenues of $207 million thus it is growing revenues by around 48% via the MedAssist acquisition.

ôWe had given guidance that we would organically grow our top-line by 50% during the course of the current fiscal year,ö says Ananda Mukerji, managing director and CEO of Firstsource in an exclusive interview with FinanceAsia. ôWe are maintaining that guidance so this revenue growth is over and above our organic growth.ö

Firstsource is advised by NY-headquartered Agile Equity. It will fund the acquisition via $275 million of debt and the balance through internal accruals. The debt-raising will be led by ICICI Bank. Current indications are that debt will be raised by way of an amortising term facility at a cost of between Libor plus 250bp to 350bp. FirstsourceÆs current gearing is quite low and it will increase to around 1:1 debt-to-equity levels after this deal.

ôWe will maintain our Ebitda at current levels of 22%-24% post the acquisition as MedAssist and FirstSource Ebitda are broadly in the same range,ö says Mukerji.

MedAssist provides revenue cycle management in the healthcare industry across the US. It is headquartered in Kentucky and has 1,400 employees. It provides three distinct services for healthcare companies: eligibility services (helping patients through the process of applying for aid); receivables management services (helping providers to manage dues); and post-default collections services. MedAssist has over 1,000 clients including hospitals, large physician groups and alternate site providers.

MedAssist was advised by Wisconsin-headquartered investment bank Robert W. Baird. Firstsource emerged winner in a competitive process which included strategic investors and private equity investors.

Firstsource already has a presence in the US healthcare BPO market on the payor side (i.e. the insurance company end) and will now also enter the provider side (i.e. the hospitals end). Currently, hospital care in the US amounts to around $700 billion and administrative costs are estimated to be 14%, or $100 billion. Revenue and cost pressure on healthcare providers is increasing so providers are outsourcing parts of their revenue cycle to maximise revenues and contain costs. MedAssist's capabilities provide Firstsource with a pan-American presence in the provider segment, consisting of over 5,000 hospitals nationwide.

"The healthcare market in the US is very attractive for outsourcing,ö says FirstsourceÆs Mukerji. ôWe do not anticipate integration issues with this acquisition as it comes to us with an established management team and niche; we will focus on the significant opportunities the deal presents to grow our business by cross-selling Firstsource's services to MedAssist's customers."

Firstsource's current clients in the healthcare industry include three "Fortune 100" US healthcare insurance companies. Its key strengths within the healthcare sector are end-to-end services, proprietary platforms and domain expertise. Income from services to healthcare clients represented 13.7% of Firstsource's revenues for the most recent quarter ended June 2007.

Firstsource says that there will be no change in the management of MedAssist and its 1,400 employees would continue in their current jobs. FirstSource has around 15,000 employees so adds another 9% to its employee base via this deal.

Firstsource shares gained around 10% on the bourses to close around Rs80 ($1.95), suggesting investors reinforced the rationale underlying the deal. The broader market was weak, losing initially, then recovering to close just a little under one percent higher.
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