Change Healthcare set a price for its IPO, and it is lower than expected

Change Healthcare, a leading independent healthcare technology platform which provides revenue cycle management and analytics products to the healthcare industry, put a price on its shares, in a final step towards going public.

The set price range is below the one previously expected  

The Nashville-based company announced June 26th, via a press release, it aims to raise over $557.7 million in an initial public offering of 42,857,142 shares of its common stock at a price of $13 each. The set price is below the $16-$19 per share range reported before the announcement.

Together with the common stock IPO, the company will also sell “5,000,000 of its 6.00% tangible equity units […] with a stated amount of $50.” This would bring an additional $250 million revenue for the company’s primary offering.

The are also convertible securities with an early execution option, and they will settle “for between 3.2051 and 3.8461 shares of the Company’s common stock per purchase contract, subject to adjustment, based upon the applicable market value of the common stock, as described in the prospectus relating to the Unit offering.” 

Big names act as main underwriters for the offering 

Barclays, Goldman Sachs, and J.P. Morgan are the main underwriters of the offering. Other institutional investors are taking part in the book-running and management of the transaction. 

BofA Merrill Lynch, Citigroup, Credit Suisse, Deutsche Bank Securities, Morgan Stanley and RBC Capital Markets are the joint bookrunners for the offerings. Blackstone Capital Markets, Baird, Cantor Fitzgerald & Co., Cowen, First Liberties Financial, Guggenheim Securities, Piper Jaffray, SunTrust Robinson Humphrey, SVB Leerink, Wells Fargo Securities, William Blair, Drexel Hamilton and Siebert Cisneros Shank & Co., LLC are co-managers for the offerings.

The underwriters have the right, guaranteed by the offering agreement, to acquire an additional 6,428,571 shares of common stock at the IPO price, and an additional 750,000 TEUs. This could bring Change Healthcare an extra $83.57 million and $37.5 million, respectively.

On the NASDAQ, Change Healthcare shares will trade under the symbol CHNG, while its tangible equity units will trade under CHNGU.

If it is not settled earlier, each stock purchase contract will automatically settle on June 30, 2022 (subject to postponement in limited circumstances) for between 3.2051 and 3.8461 shares of the Company’s common stock per purchase contract. This will be subject to adjustment, based upon the applicable market value of the common stock, as described in the offering prospectus. 

The net earnings from both the common stock offering and the Units offering are going to be used so Change could repay a portion of the outstanding indebtedness, totaling over $5 billion, under its senior secured term loan facility.

A complicated corporate history and huge implications in the healthcare industry

Change Healthcare is the result of numerous private equity-led business combinations, having a long and rather complicated corporate history. The current IPO was equally laborious. 

Mid March 2019, Change Healthcare filed a prospectus with the Securities and Exchange Commission (SEC) for a $100 million initial public offering (IPO), hoping to cover over $5billion worth of debts. This pricing is one of the final steps of the IPO, but whether earnings will cover existing debts remains to be seen. 

Change Healthcare business, which is now privately owned, is backed by investment firm Blackstone Group (NYSE:BX) and by private equity group Hellman & Friedman.

Founded in 2005, the Nashville-based company provides data and analytics-driven solutions to insure better clinical, financial and patient engagement outcomes. Among its products are  suites of software, analytics, technology-enabled services, and network solutions.

Change Healthcare operates in key areas of the healthcare delivery and payment system, including, according to its filing, patient/member access; treatment/documentation; reimbursement; and post-payment/communication. The main purpose is to limit wasteful spending, spanning fraud, overtreatment, and administrative waste in healthcare.

The stakes are high for Change, so is the need for the IPO to go smoothly

In the filings, the company also cited among its recent innovations, the launch of “a blockchain solution that supports approximately 20 million transactions per day. By leveraging blockchain technology, a client can query the status and full event history of a claim in real-time, accurately tracking the status of claims submission and remittance across the complete claim lifecycle and creating data records to track a patient’s episodes of care. In addition to improving transparency and efficiency, the incorporation of blockchain technology enables greater auditability, traceability, and trust – all for better revenue cycle management.”

The stakes are high for Change Healthcare, and so is the need for the IPO to go smoothly. At the end of last year, the company had around 14,000 employees and 30,000 customers. It provides solutions supporting approximately 2,200 government and commercial payer connections, 900,000 physicians, 118,000 dentists, 33,000 pharmacies, 5,500 hospitals and 600 laboratories.

The network the company services makes transactions with clinical records belonging to over 112 million patients, more than one third of the US population, so the impact the company has on the healthcare system is huge. The company is working with industry-leading technology companies, including AWS, Google, Adobe and Microsoft, so the implications of its initial public offering working out go well beyond the welfare of Change Health and its employees.