JPM 2022: R1 RCM picks up AI software firm Cloudmed in $4.1B all-stock deal

Revenue cycle management company R1 RCM on Monday announced it plans to acquire Cloudmed in an all-stock transaction that values the software company at roughly $4.1 billion.

The deal was announced in a press release as the industry meets virtually for the J.P. Morgan Healthcare Conference.

Cloudmed serves more than 400 of the largest health systems in the U.S., including 47 of the top 50 hospital systems. The company uses artificial intelligence and automation to analyze large volumes of medical records, payment data and complex medical insurance models to identify opportunities to deliver additional revenue for healthcare providers. The company partners with more than 3,100 healthcare providers and says it has recovered more than $1.5 billion of underpaid or unidentified revenue for its clients annually. 

The company said the transaction values Cloudmed at $4.1 billion, including $857 million of net debt, based on R1's closing stock price Friday.

Joe Flanagan, president and CEO of R1, said in a statement that the acquisition will accelerate R1's strategy to build the most scalable, flexible and integrated platform for the revenue cycle and consumer engagement in healthcare.

"Our combined solutions, including enhanced automation capabilities, will further transform the patient experience and drive continued improvement in our customers’ financial results. I look forward to working with Cloudmed’s CEO, Lee Rivas, and the entire Cloudmed team whose additive talent and expertise will help us continue to optimize outcomes for healthcare systems and create value for all our stakeholders," Flanagan said.

RELATED: R1 RCM to buy digital payment solutions company VisitPay for $300M

Cloudmed solves a critical problem in the healthcare system by helping healthcare providers get paid for the services they deliver, according to Rivas.

"By combining with R1, we will be creating a best-in-class platform with market-leading capabilities to drive improved outcomes for our customers, among the leading healthcare providers in the country. R1 shares our values and focus on innovation, which is why we are so excited about joining them to drive value for healthcare providers," he said.

After the transaction closes, current R1 shareholders will own approximately 70% of the combined company on a fully diluted basis, and Cloudmed equity holders will own approximately 30%. Cloudmed is a New Mountain Capital portfolio company and is privately held.

The deal is expected to close in the second quarter of 2022.

Flanagan will serve as CEO of the combined company, and Rivas will serve as president of the combined company. Upon closing of the transaction, R1 will increase the size of its board of directors to include three new board members nominated by New Mountain Capital.

The acquisition beefs up R1's revenue intelligence and automation capabilities, the company said, and the combined company will have a diversified customer base with well-established relationships across 50 states.

RELATED: R1 RCM buys Cerner's revenue cycle outsourcing business for $30M

The transaction also brings significant financial benefits, and executives expect the acquisition to be accretive to R1's per-share earnings in the first full year post-closing. R1 expects cost savings of $85 million by the end of year three and $98 million at full run-rate as well as significant revenue savings over time, according to a press release.

R1 has made several acquisitions in the past two years to build its capabilities and technology in the RCM market. Last year, the company picked up patient financial engagement company VisitPay for $300 million in cash.

VisitPay, a privately held company based in Boise, Idaho, sells patient billing tools. R1 said these added capabilities will enable the company to lead the healthcare payments market in price transparency, flexible and personalized payment options, tailored communications and big data analytics.

In 2020, R1 bought health IT giant Cerner's revenue cycle business for $30 million. The company nabbed Cerner RevWorks' services business and commercial, nonfederal client relationships. That deal further established R1's footprint across the acute and ambulatory markets, the company said in a filing with the U.S. Securities and Exchange Commission. The RevWorks business brings in approximately $80 million in annual revenue across more than 150 customers.

 The company also paid $190 million to acquire SCI Solutions, a provider of SaaS-based scheduling and patient access solutions.

In the third quarter of 2021, R1 posted revenue of $380 million, up $73 million or 24% compared to the same period last year.