Axia Turns Healthy Multiple For Genstar, Nautic

Target: Axia Health Management LLC

Purchase Price: $450M

Sellers: Genstar Capital, Nautic Partners

Buyer: Healthways Inc.

Financial Advisor: Sellers: Credit Suisse

Legal Counsel: Sellers: Edwards Angell Palmer & Dodge LLP

Last week Genstar Capital and Nautic Partners agreed to check out of their investment in Axia Health Management LLC in a deal that will give the pair of equity sponsors north of a 3.5x return on their investment. Less than two years after creating it, the two firms will sell the provider of preventive health and wellness programs to strategic buyer Healthways Inc. for $450 million.

Axia was formed as a holding company in December 2004 when Nautic and Genstar teamed up with preventative healthcare veteran and current Axia CEO Ben Lytle to create a comprehensive suite of health and wellness programs to sell to insurance providers and employers. Twenty-two months and five acquisitions later, the Tempe, Ariz.-based company is expecting to generate $33 million in EBITDA on $150 million in revenues in 2007.

“It is early in the process, and had we held on to it, we believe the company would have doubled [in size] in another year or two,” Genstar Managing Director Rob Weltman tells Buyouts. “We were not in any rush to get out of the investment, but Healthways—to their credit—had been hanging around for a long time making an effort to get to know us and Axia, and, quite frankly, they made us an offer we couldn’t refuse.”

Weltman says that words like “wellness” and “prevention” are increasingly being used by the HR community as more employers recognize that the best way to treat illness is to avoid it altogether. “It used to be that health plans were designed to treat people after they got sick. Now they’re starting to focus on healthy people to keep them from getting sick—and that’s about 85% of the population,” he says.

Wellness programs are nothing new, Weltman says, noting that there are a number of “single product companies” in the market that focus on particular aspects of prevention. But the “single product” is flawed in that it forces employers and insurance providers to deal with a number of wellness companies in order to create a single, well-rounded program.

“People had to hire [consultants like] a Watson Wyatt [Worldwide Inc.]…to go out and buy different products from different companies—but these different companies didn’t talk to each other,” Weltman says. “For instance, smoking cessation would have no idea what was going on with fitness, and so on. They were all in separate silos.”

What differentiates Axia is that it stitched together a cross-section of wellness and prevention products into an integrated program. The benefit is communication and synchronicity between regimens, which leads to better results, Weltman says.

Axia is made up five components that include HealthCare Dimensions, a provider of fitness-oriented prevention programs; American WholeHealth Networks, which specializes in integrative medicine and services; Harris HealthTrends, a provider of personalized health management services;, a web-based smoking cessation program; and My ePHIT, an interactive online program that promotes physical fitness, healthy eating habits and behavioral management.

In a conference call discussing the transaction, Lytle said Axia is the largest provider in terms of pure prevention and wellness revenues and the broadest in product reach.

For Genstar, the Axia deal sits in Genstar Capital Partners IV LP, a $475 million investment vehicle raised in 2004. Nautic, meanwhile, holds the company in its vintage-2001 Nautic Partners V LP, which closed on just north of $1 billion.

Fueled by its positive experience with Axia, Weltman says that Genstar will continue to look for new opportunities along the same lines. “Health and wellness is a growing market and we want to build on it,” Weltman says. “We learned a lot [through Axia] and met a lot of people in the industry and look forward to making more investments in the wellness sector.”—A.N.