The Providence Service Corporation (“Providence”) (Nasdaq:PRSC)
today announced it has signed a definitive subscription agreement
with an affiliate of Frazier Healthcare Partners (“Frazier”), a
leading private equity firm based in Seattle, pursuant to which
Frazier will own a 60% equity interest in Matrix Medical Network
(“Matrix”), which values Matrix at approximately $537.5 million.
Following closing of the transaction, Providence will retain
a 40% equity interest in Matrix and have representatives on
Matrix’s Board of Directors.
“This partnership will allow us to accelerate
our growth strategy into a diversified healthcare services company
by leveraging our proven operational platform as the foundation,”
said Walt Cooper, CEO of Matrix. “We look forward to
partnering with one of the preeminent healthcare investors by
utilizing their strategic relationships and broad expertise to
bring care to more markets and more populations.”
“We are excited to partner with Providence to
help Matrix expand its core offerings into adjacent markets and
provide innovative additional services to its customers' members,”
said Ben Magnano, General Partner at Frazier. “This
partnership is another successful example of Frazier's operating
partner model whereby we work with experienced executives to
identify and invest in growth areas within healthcare. Brett
Moraski, who is a long-tenured managed care executive and Frazier
Operating Partner, helped create the opportunity for investment
into Matrix in partnership with Providence. We look forward
to working with the Matrix team and Brett to continue driving the
future growth of the business.”
According to James Lindstrom, CEO of Providence,
“After recently completing its two millionth in-home health
assessment visit, we are creating this partnership with Frazier to
accelerate Matrix’s growth opportunities. Partnering with
Frazier is an example of how Providence seeks to work with leaders
in industry domains, particularly where those partners with deep
industry insight, when combined with our long-term investment
perspective, can provide advantages for our clients, colleagues and
shareholders. For Providence, the transaction represents a
validation of the investment to date and the liquidity provides
further opportunity for disciplined capital deployment.”
Strategic Partnership
Overview
The strategic partnership with Frazier is
expected to generate substantial strategic and operational
benefits, such as:
- Positioning Matrix to accelerate growth in its chronic care
management and assessment offerings;
- Providing Matrix with access to Frazier’s network and domain
expertise in payor services, which can provide additional
acquisition and investment opportunities for both Providence and
Frazier; and
- Allowing Providence to benefit from Matrix’s enhanced earnings
growth profile through its ongoing equity ownership.
The transaction, which has been approved by the
Providence Board of Directors, values Matrix at $537.5
million. Providence will receive gross cash proceeds from
Matrix of approximately $418 million before transaction fees,
taxes, and customary post-closing adjustments while also retaining
a 40% equity interest in Matrix. The cash proceeds to
Providence are comprised of a new term loan fully underwritten by
SunTrust Robinson Humphrey and Frazier’s subscription for a 60%
equity interest. Further details can be found in the 8-K to
be filed on or about August 31, 2016.
Matrix Background
Acquired by Providence in October 2014 for
approximately $393 million, Matrix has strengthened its strategic
value through a variety of initiatives under the Matrix and
Providence leadership teams. In an effort to build a
foundation for future growth, Matrix has since launched an in-home
chronic care management program and expanded its in-home
assessments offerings into adjacent markets. In 2015, Matrix
generated $217.4 million of revenue and operating income of $22.1
million, which included $29.5 million of depreciation and
amortization.
Additional Transaction
Considerations
Providence intends to use a portion of the cash
proceeds to repay in full its term loan and swingline credit
facilities. Upon the closing of the transaction, Providence
expects to have approximately $194 million of undrawn capacity on
its swingline credit facilities. Based upon Providence’s
anticipated outstanding debt immediately after closing of the
transaction, Providence expects its annual interest expense to
decrease to approximately $0.5 million per year and to be comprised
primarily of undrawn revolving commitment fees.
Providence expects to recognize a pre-tax gain
as a result of the transaction in the range of $125 million to $150
million in the fourth quarter of 2016. Upon closing,
Providence expects to report its 40% equity interest in Matrix as
an equity investment.
Subject to additional management evaluation of
market and business conditions, share price and other factors and
evaluation and approval by Providence’s Board of Directors, the
remaining net proceeds from the transaction may be used by
Providence for acquisitions, investments in the long-term
development of the Company’s other businesses and the return of
capital to stockholders through a share buyback program, among
other uses.
The transaction is subject to satisfaction of
customary closing conditions and is expected to close in the fourth
quarter of 2016.
TripleTree served as financial advisor to Providence.
Debevoise & Plimpton LLP served as Providence’s primary legal
counsel. Goodwin & Proctor LLP served as Frazier’s
primary legal counsel.
About Providence
The Providence Service Corporation is a holding
company whose subsidiaries provide critical healthcare and
workforce development services, comprised of non-emergency
transportation services, workforce development services, legal
offender rehabilitation services, health assessment services, and
care management services in the United States and abroad. For
more information, please visit www.prscholdings.com.
About Frazier Healthcare Partners
Founded in 1991, Frazier Healthcare Partners is
a leading provider of growth capital to healthcare companies. The
firm has over $2.9 billion in committed capital under management
and has made investments in over 170 healthcare companies with
investment types ranging from company creation and venture capital
to growth buyouts and leveraged recapitalizations. Frazier’s
experienced team takes an active approach to helping build
portfolio companies, leveraging the team’s deep domain expertise
and expansive network of healthcare executives, advisors and
industry thought leaders. The firm’s Growth Buyout team invests in
profitable companies focusing on healthcare services,
pharmaceutical services, medical products, and related sectors. The
firm’s Life Sciences team invests in therapeutics and related areas
that are addressing unmet medical needs through innovation. Frazier
has offices in Seattle, Washington and Menlo Park, California, and
invests broadly across the United States, Canada, and Europe.
Additional information about Frazier is available through its
website, www.frazierhealthcare.com.
Forward-Looking Statements
This press release contains “forward-looking
statements” within the meaning of the Private Securities Litigation
Reform Act of 1995. Words such as “believe,” “demonstrate,”
“expect,” “estimate,” “forecast,” “anticipate,” “should” and
“likely” and similar expressions identify forward-looking
statements. In addition, statements that are not historical should
also be considered forward-looking statements. Readers are
cautioned not to place undue reliance on those forward-looking
statements, which speak only as of the date the statement was made.
Such forward-looking statements are based on current expectations
and assumptions of Providence’s management that involve a number of
known and unknown risks, uncertainties and other factors which may
cause actual events to be materially different from those expressed
or implied by such forward-looking statements. These factors
include, but are not limited to, the timing of the closing of, and
risks associated with the ability to consummate, the transaction
between Providence and Frazier, the ability of Matrix to realize
the anticipated benefits of the partnership between Providence and
Frazier, the potential impact of the announcement of the
transaction or consummation of the transaction on relationships,
including with employees, customers and competitors and other risks
detailed in Providence’s filings with the Securities and Exchange
Commission, including its Annual Report on Form 10-K for the fiscal
year ended December 31, 2015 and subsequent filings.
Providence is under no obligation to (and expressly disclaims
any such obligation to) update any of the information in this press
release if any forward-looking statement later turns out to be
inaccurate whether as a result of new information, future events or
otherwise.
Investor Relations Contact
Chris Brigleb – VP of Finance
(203) 816-6589
Providence Service (NASDAQ:PRSC)
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