Fast-growing Ability Network of Minneapolis will be acquired in a $1.2 billion transaction by the data analytics firm Inovalon Holdings of suburban Washington, D.C.
Analysts said Inovalon will get scale and lessen its reliance on insurance companies through access to the 44,000 health care facilities in which Ability's cloud-based software platform provides management and other administrative services and helps link payers and providers.
Bowie, Md.-based Inovalon's technology analyzes data about medical incidents and uses predictive algorithms to suggest health conditions.
Ability Network and Inovalon said they will create "a vertically integrated cloud-based platform empowering the achievement of real-time, value-based care from payers, manufacturers and diagnostics all the way to the patient's point of care."
Inovalon CEO Keith Dunleavy said, "The addition of Ability's platform-based applications, extensive provider client base and connectivity, and efficient, high-volume distribution channel will enable Inovalon to deliver increasingly differentiated value to both Ability's provider customers and Inovalon's established client base, as well as drive significant growth and accretive financial performance for our shareholders in 2018 and going forward."
The transaction consists of $1.1 billion cash and $100 million in restricted Inovalon stock.
Inovalon's stock closed up 2.4 percent to $12.70 per share Wednesday. The company is valued at $1.83 billion.
Ability CEO Mark Pulido is a veteran pharma executive who took over Ability in 2015 with an eye to grow and peddle it for its institutional owner.
The Minneapolis-based software firm, which employs about 550 people, had no comment on layoffs or other implications of the deal.
Ability was acquired in 2014 for $550 million by Boston private-equity firm Summit Partners.
The company links health care providers, from a doctor's office to hospital systems, to payers, such as commercial insurers and Medicare.
Pulido said last year about half of the nation's "sites of care," including home health agencies and nursing homes, use Ability's "My Ability" online portal. The company, which sells software and related analytical services on a monthly subscription basis, has been recognized for its growth and technology, including being named last year to Forbes 2016 list of "The Cloud 100" for its Web-based payment-and-analytics systems.
Pulido, 64, has delivered a growing, profitable enterprise. According to Inovalon, Ability boasts a gross profit margin of 80 percent, an operating profit margin of more than 50 percent and will add $50 million in earnings before interest, taxes and depreciation (EBIDTA), assuming an April closing.
Upon closing, Ability Chief Financial Officer Jamison Rice will serve as general manager & divisional president of Ability, reporting to Inovalon's CEO Dunleavy, who is also a medical doctor. Pulido will serve as an adviser on the integration of Ability and join Inovalon's board of directors.
Ability was founded in 2002 by Amy Coulter and John Fraser, who hired a former 3M technologist as CEO in 2001. They saw the need for an electronic highway between providers and payers as electronic health records started to emerge. And it's looked like a superhighway in recent years as the Affordable Care Act ramped up electronic records.
Ability, flush with two rounds of private equity capital, grew from $15 million in revenue in 2011 to $140 million last year.