Advisory Board's (ABCO) stock price skyrocketing 16% to $42 Thursday after Elliott Management Corp.'s Paul Singer launched an activist campaign at the health care technology and consulting company to consider a variety of options, including "strategic transactions" such as a sale.
The activist fund provided few details about its investment strategy in an activist securities filing it released, disclosing a 8.3% stake in the company. However, people familiar with the situation note that Elliott Management would like to see the company consider selling itself, with an auction focusing on potential private equity bidders.
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People familiar with the situation said the activist argues the company's underlying business is supposed to be stable with hospital subscriptions, but that concerns about potential changes to health care regulation in light on the incoming Trump administration and Republican efforts on Capitol Hill suggest Advisory Board would do better over the long term as a private enterprise.
Specifically, the people familiar with Elliott suggested that public hospital companies have concerns about what their reimbursements will look like if fewer individuals are covered with insurance being rolled back, which is having a derivative impact on their information technology service spending.
They argue that private equity players have a lot of capacity to make acquisitions and would have a longer-term focus than the public markets, noting that there has been a lot of M&A in the space lately. For example, Vestar Capital Partners-backed Press Ganey Holdings announced in August that it plans to be acquired by Swedish financial sponsor EQT Partners in a $2.35 billion deal. In December, buyout shop TPG Capital struck a deal to acquire Mediware Information Systems, a health care software company, from private equity firm Thoma Bravo. In 2015, Pamplona Capital Management acquired MedAssets, a health care performance company that also serves hospitals. In addition, they contend that Blackstone Group (BX - Get Report) could be interested.
Richard Close, health care analyst at Canaccord Genuity Inc. in Nashville, Tenn., noted that Advisory Board has been struggling of late, missing analyst consensus estimates frequently in recent months. Nevertheless, Close said ABCO would be an attractive asset to a buyer.
Last year "was a challenging year for them," Close said. "Nevertheless, they would be an attractive asset. They have a significant customer base and are well-respected in the health care industry as a thought leader, trusted partner for health systems," Close said.
He noted that IBM (IBM - Get Report) has completed a number of acquisitions in the health care technology space, including a February 2016 $2.6 billion acquisition of Truven Health Analytics. Hospitals and insurers use Truven to manage data produced by the health care industry. In 2015, IBM acquired two health care technology companies, Explorys and Phytel.
It's very possible Elliott Management could launch director-election proxy contest as part of a pressure campaign to drive Advisory Board to consider selling itself. The insurgent fund has launched 117 campaigns, including 14 proxy contests since 1994. Any potential director election campaign Elliott might consider launching for Advisory Board's 2017 annual meeting would need to be initiated by March 9, according to securities filings.
Elliott Management pushed Cabela's (CAB) to sell itself to Bass Pro Shops in a $5.5 billion deal announced in October. Elliott has been on a tear when it comes to driving major M&A at targeted companies. In addition to Cabelas, American Capital, Qlik, Mentor Graphics and LifeLock all sold last year under Elliott pressure.
An Advisory Board spokesman said the company is always open to discussing constructive ideas for enhancing long-term shareholder value with its investors. He added that the company continues to focus on a number of initiatives, including a revised health care strategy and restructuring plan it announced on Jan. 3.