This is an eventful year for Change Healthcare (NASDAQ: CHNG). Not only did it split from longtime partner McKesson Corporation (NYSE: MCK) in March, it bought and sold some companies in May.
First, the split with McKesson. Back in June 2016, McKesson acquired a 70% stake in Change Healthcare, then backed by Blackstone Group and Hellman & Friedman. At the time, Change provided software, analytics, and network solutions aimed to give users more effective communications, payments, and actionable insights.
The merger combined substantially all of Change Healthcare’s business and the majority of McKesson’s Technology Solutions into a new company, still called Change Healthcare. That deal closed in March 2017. At the time, Rx Networks was spun out of Change Healthcare to former investors, Blackstone and Hellman & Friedman.
Three years later, McKesson completed its previously announced split-off from Change Healthcare on March 10.
On May 1, Change completed two more deals. In one, the company divested its Connected Analytics business to Kaufman Hall & Associates, LLC for $55 million. The division’s products include Performance Manager and Analytics Explorer, as well as Data Platform & Solutions, HIE, and Orders & Results. For the nine-month period ending December 31, 2019, Connected Analytics generated revenue of $48.6 million and contributed less than 2.5% of Change Healthcare’s adjusted EBITDA for the period.
On the same day, Change acquired eRx Network, a real-time pharmacy network, for $212.9 million. The company is the former Rx Network that was spun off in 2016 to Blackstone, Hellman & Friedman, and a few Change Healthcare executives and directors, including CEO Neil de Crescenzo. Each entered into an agreement providing an option to acquire eRx, exercisable when McKesson owned less than 5% of the joint venture.
According to Change’s 8-K filed with the SEC on May 4, the purchase price was calculated based on a formula set forth in the Option Agreement of $1.00 plus the adjusted EBITDA of eRx (including synergies related to the company’s acquisition) for the 12-month period ended February 29, 2020, less $14.269 million multiplied by 12.
The eRx Network is integrated into pharmacies’ workflows to improve operational efficiency and optimize reimbursement. The addition of eRx brings strategic benefits including a broader solutions portfolio to offer pharmacies, the ability to serve patients, providers, and payers more comprehensively and the potential to enter new markets.