This Under-The-Radar Co. Landed $550M
Minneapolis-based Ability Network Inc. flashed upon the national deal radar in March, first rumored to be selling for $500 million, and later announcing instead that it received $550 million in financing. The news left many wondering: “Who are these guys?”
Founded in 2000 as VisionShare Inc., the company quietly grew to become a national leader in its area of specialty—processing Medicare payments for health care providers. And along the way, it’s picked up powerful and well-respected investors, including Boston-based Bain Capital, one of the world’s leading private equity players, with more than $70 billion under management.
Yet Ability has flown under the radar of many local deal watchers and medical industry professionals. One reason could be the Twin Cities’ tendency to focus mostly on industries it knows best, particularly medical device companies.
St. Louis Park-based trade group LifeScience Alley reported that local medical startups raised $341 million in financing in 2013, the best showing in the last five years. But nearly 90 percent of that money was raised by medical device companies. Health IT companies in Minnesota raised $27.4 million last year, only 8 percent of the total.
Nationally, however, health IT is becoming hotter than med-tech. For example, the March initial public offering of San Francisco-based Castlight Health Inc., a health care software company, drew attention when its valuation soared to more than $2 billion, even though that company is still losing money and posted revenue of only $13 million last year.
It’s within such an emerging, high-valuation marketplace that Ability has developed a secure, web-based network that allows hospitals and other health care providers to connect with Medicare, tracking claims and reimbursement more efficiently, and less expensively, than anything else available today.
“The markets that we have the opportunity to go and serve are multibillion-dollar markets,” says CEO Mark Briggs, who joined the company in 2010 to reposition and grow it more quickly. “We’re a long ways away from saying that we feel like we’ve done all the work that we have here to do. We’ve grown it tenfold, but there’s another hundredfold to grow.”
Since landing at Ability, Briggs has appeared at forums presented by the Collaborative, a Minneapolis-based organization serving emerging companies.
“Just in the time since [Briggs] has been brought on as CEO, that company has more than doubled in size,” says Dan Carr, president of the Collaborative. “Ability is in a very unique space. …When Bain puts dough into a Minnesota company, that’s a huge thing to be celebrating.”
The company also had a solid foundation to work from. It was the first to be approved to connect providers to the Centers for Medicare & Medicaid Services (CMS) through a secure web-based system in 2004. Briggs says that his charge was to reposition what was a tech company at heart and rebuild it to better serve health care clients.
“We took this technology company, pivoted it to become a health care company and began listening to our customers and understanding how they had been using this technology network, and what we could do to add more value,” he says. “The idea was, ‘My goodness: It’s a health care startup with a 10-year history and a huge customer base and great talent.’ ”
With this approach, and amid the changing health care landscape—which has evolved more rapidly since the Affordable Care Act was signed into law in 2010—Ability has been able to grow to where its platform now serves 40,000 people in hospitals, nursing homes and hospices.
Briggs is not from Minnesota’s deep bench of health care executives: He’s from Boston, with a track record with several health care companies. He was originally recruited as a potential board member, but wound up becoming CEO. VisionShare was renamed Ability Network in 2011.
“I just couldn’t believe it when a friend of mine who was trying to fill this board seat called and described this little bitty company in Minnesota that had half the hospitals in the country and thousands of other providers, like home health agencies and skilled nursing facilities, using their technology. I said, ‘You have to be kidding. This is the best-kept secret in the industry,’ ” Briggs says. “I asked my friends at Bain Capital to come on and help and rebuild this company going forward.”
According to an April 2012 filing with the U.S. Securities and Exchange Commission, the most recent on file for the company, Ability raised more than $27.7 million in equity through a financing round. Based on the SEC filings, it’s not clear how much the company has raised since its inception.
While some local med-tech players lament that financing has become much tougher to find, Briggs thinks that entrepreneurs with a solid business plan can find capital even during tough market cycles.
In March 2013, the company announced a deal to acquire its main competitor, the Stamford, Conn.-based Ivans Inc., which further expanded its network; the price of the deal was not disclosed. Ivans, an older company than Ability, was actually the first company that was approved to connect with Medicare back in the 1990s, albeit through a dial-up modem.
Health care reform has been working to Ability’s advantage. Ability’s biggest partner? The federal government.
“Providers have to get a lot better at being efficient in the administration of care to capture the reimbursement made available to them from Medicare and, of course, all of the commercial payers that follow Medicare’s lead,” says Briggs. “The biggest partner we have in the company is Medicare. We are the nation’s dominant network for CMS and Medicare.”
Ability’s headquarters are in the Butler Square building in downtown Minneapolis, but the firm also has offices in Boston and in Tampa, Fla., with smaller satellites in other cities. The company has more than 200 employees and continues to grow. Briggs mentions both Atlanta and San Francisco as cities that he has his eye on.
“We will continue our geographic expansion across the country,” Briggs says. “The company has just been growing like a weed.”
Golden Valley-based Home Health Care Inc. has used the Ability Network system for about a year. The company’s director of finance, Paula Symicek, says that Ability has been a great tool for the company, a home health care agency with about 500 employees.
“We want efficiency. We’re a bigger operation so we want things to be seamless,” Symicek says. “Nothing comes close to what they have. It’s user-friendly. Anybody can use it. It’s a huge asset to our company. It’s a wonderful system.”
Using Ability, she says that her company can quickly determine a patient’s Medicare eligibility and can track claims through the system. Part of the appeal of the Ability Network system is its simplicity: All of the relevant information can be seen on the first screen that users pull up.
“You don’t go through 80 other screens. It’s all in front of me,” Symicek says.
Previously, Home Health Care worked directly with Medicare, selecting Ability over three other competitors because the Ability system was much more streamlined. Symicek adds that Ability’s approach is not weighted down with convoluted jargon.
“It is totally in English,” Symicek says.
Breaking through the device bias
In June 2000, VisionShare was a brand-new company with an idea to move health care information securely over the Internet. John Fraser and Amy Coulter co-founded the company, which was originally based in the Court International building in St. Paul near the intersection of University Avenue and Highway 280.
“When we started our biggest competitor was Ivans, which had a bunch of modem banks,” Fraser recalls. “The federal government was allergic to using the Internet in 2000 because of security concerns.”
Fraser remembers that in the land of 10,000 medical devices, many potential investors did not understand the company’s concept.
“When we talked to investors they wanted to know about our FDA approvals,” Fraser says with a laugh. “Because it was health IT we were sort of invisible here in the Minneapolis area.”
Fraser, a self-described “start-up guy,” ultimately left VisionShare in 2006 to launch another company, ApeniMED, which sold in 2013. Now he’s preparing to launch his next venture, iCareSoft LLC.
Fraser declines to discuss VisionShare’s historical revenue or the money it raised from investors, but says that the company had about 50 employees when he left in 2006. An SEC filing from January 2005 details the company raising $832,000 in equity through a financing round. The filing does not identify the investors.
When it was still VisionShare, the company won a Tekne Award in 2006 from the Minnesota High Tech Association as an emerging company in the IT software, communications and infrastructure category.
At the time, Tekne judges noted, “VisionShare’s Secure Exchange Software provides a single method of communication to health care payers, allowing the health care provider to remove expensive leased lines, eliminate time-consuming dial-up connections and automate regular data exchanges.”
Fraser is proud of the company that he co-founded: “I think what this demonstrates is the growing strength of the whole health IT market in Minnesota.”
Briggs spoke with Twin Cities Business late in 2013 about Ability. After a Wall Street Journal story hit the streets, Briggs declined to talk further. As Twin Cities Business went to press, Ability Network announced a $550 million “strategic investment” from Boston-based equity investor Summit Partners. The investment–which was not a sale of Ability–represented “one of Summit Partners’ largest healthcare transactions to date.”
The Wall Street Journal cited unnamed sources who claimed that the $500 million asking price translated into 17 times the company’s estimated $30 million in 2013 earnings before interest, taxes, depreciation and amortization (EBITDA) in an increasingly heated climate for health IT deals. Briggs declined to disclose the company’s revenue to Twin Cities Business.
Bain’s Jeff Crisan sits on the Ability board. The board also includes Tony Miller, managing partner of Wayzata-based Lemhi Ventures, another Ability investor. Miller was the co-founder and CEO of Definity Health, a health benefit company sold to UnitedHealth Group in 2004. Neither Crisan nor Miller returned phone calls from Twin Cities Business.
(Bain Capital is also a backer of Eden Prairie-based Bluestem Brands Inc., a catalog retailer that’s the parent company of Fingerhut. Reports surfaced in late March that Bluestem was also up for sale.)
In his 2013 interview, Briggs said he sees a big horizon for Ability.
“We’ve come nowhere close to cresting on the value that the company can go and provide to our customers and then reflect back to our shareholders,” says Briggs. “We’re in the early stages of this growth opportunity.”