3M (NYSE: MMM) is revisiting a potential divestiture of Health Information Systems, its health care revenue cycle management and software arm, sources tell Axios.
Why it matters: HIS is a large, profitable and high-quality RCM business, and should arguably be valued at a higher multiple than the conglomerate that it sits under. That said, the future growth opportunity as, hypothetically, a standalone business, is not clear.
What’s happening: Goldman Sachs is advising on the evaluation of a carve-out of the health care IT division, again.
- A narrow group of parties is circling the asset, one source says.
- HIS sits within 3M’s larger health group, which as a whole contributed to some $9 billion of 2021 sales.
Flashback: 3M tapped Goldman in 2015 to explore strategic alternatives for the unit, including a spinoff or sale.
- That process was ultimately shelved in early 2016, with 3M deciding to “retain and further invest in the business.”
- HIS acquired a Swiss medical coding company in late 2016, and in 2019 bought M*Modal, a provider of transcription and speech recognition technology, for a TEV of $1 billion.
Zoom in: HIS generated $300 million in sales in Q1 2022, up from $289 million in Q1 2021, 3M reported Tuesday morning.
- 3M’s HIS has solutions in 25 countries and 10,000 hospitals worldwide aimed to improve the revenue cycle, including computer-assisted coding, clinical documentation integrity and performance monitoring.
What they’re saying: While 3M could hypothetically pursue a public spinoff on a tax-free basis, “even great companies like Ensemble” didn’t tap the public equity markets despite the strong recent performance, one source notes.
- Scoring an investment from Berkshire Partners and Warburg Pincus, health care RCM company Ensemble Health Partners commanded a $5 billion-plus valuation off of ~$300m of EBITDA last month, sources told Sarah.
- Given that HIS doesn’t appear to be “super high growth” relative to other health tech players, a longer-dated fund with a lower IRR threshold may be a logical acquirer of the asset, another source predicts.
- A strategic buyer wouldn’t make sense given the likely regulatory hurdles that would be faced, this person adds.
- 3M is “probably hoping to capture peak pricing for an asset worth double the multiple of the parent company,” a third source says.
3M and Goldman declined to comment.