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PE-backed XLHealth sold to UnitedHealth

by Lou Whiteman | Published November 22, 2011 at 11:45 AM

UnitedHealth Group Inc. said Tuesday, Nov. 22, it would buy private equity-backed XLHealth Corp. to expand its business offering benefits to the elderly.

Terms of the deal were not disclosed, but it was likely quite sizable. Baltimore-based XLHealth, which serves 113,000 Medicare Advantage customers in six states, is expected to generate more than $2 billion in sales next year. Previous reporting on the company's auction indicated that UnitedHealth along with rivals WellPoint Inc. and Aetna Inc. were considering bids of at least $1.5 billion.

XLHealth, formed as a disease management consultant, began a shift toward operating its own health plans in 2004 after receiving equity funding from Goldman Sachs Capital Partners. It added MatlinPatterson Global Advisers LLC as an investor in 2007. The company focuses primarily on Medicare recipients with special needs including chronic illness, and those who are also eligible for Medicaid.

Minnetonka, Minn.-based UnitedHealth, which provides health benefits for more than 38 million people on individual, employer and government-sponsored plans, said the purchase would provide expertise in managing patients with elevated health risks. About 90% of Medicare beneficiaries have at least one chronic condition, the company said, adding that it hopes to apply XLHealth's model for insuring those recipients across its business.

"Combining XLHealth's substantial capabilities and outstanding employees serving high-risk, chronically-ill Medicare beneficiaries with UnitedHealthcare's breadth in both Medicare and Medicaid will significantly enhance our ability to serve older Americans," UnitedHealth CEO Gail Boudreaux said in a statement. "As more Americans enter Medicare with multiple chronic conditions, including many who are also eligible for Medicaid, health plans that deliver effective complex care management can make an enormous difference in the quality of care beneficiaries receive."

The all-cash deal is expected to close in the first half of 2012, subject to regulatory approvals.

Daniel Decelles and Christian Hilliard of Jefferies & Co. advised XLHealth. A Sullivan & Cromwell LLP team including partners Keith Pagnani, Melissa Sawyer, Ronald Creamer, Nader Mousavi, Blaze Waleski, Matthew Friestedt and Matt Brennan represented UnitedHealth.

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