JLL Pumps $64M into HMO
JLL Partners Inc. is expected to announce Monday, Nov. 22, that it has acquired a controlling stake in Medical Card System Inc., Puerto Rico’s second-largest health maintenance organization.
Stephen Wise, a JLL vice president, said the New York buyout firm invested $64 million of equity capital in a leveraged recapitalization of MCS. He said a group of Puerto Rican banks helped finance the deal, whose overall value he wouldn’t specify. Nor would he disclose MCS’ revenue or cash flows.
Wise said JLL bought the stake from Felipe Benedit, who founded the HMO in 1982 and is its nonexecutive CEO, and from a group of minority owners that included Advent-Morro Equity Partners, Puerto Rico’s biggest private equity house.
Advent-Morro sold a fraction of its minority interest in MCS but kept a large stake. Benedit, who sold most of his stock, will resign as CEO but remain a member of the board.
Wise said JLL and Carlos Muñoz, the HMO’s current president and new CEO, plan to build MCS, which already offers commercial HMO plans and Medicaid plans, into a major player in a third line of business, private Medicare insurance, known as Medicare Advantage plans.
“The market for Medicare HMOs in Puerto Rico is underpenetrated,” Wise said. “There is really only one competitor that offers plans, a company called MMM Healthcare [Inc.]. We felt MCS was the best platform to invest in that market.”
San Juan-based MCS has two core product lines. Its longtime core business was to provide medical coverage to employees of major corporations on the island, such as Baxter International Inc. and Pfizer Inc. In 2000, MCS pushed into Medicaid services, a segment in which it now serves more than 500,000 people.
Now JLL and Muñoz have set their sights on private Medicare plans. MCS will start to offer such services in January.
Wise observed that private plans received a huge financial boost in 2003, when Congress passed the Medicare Modernization Act. The act, best known for expanding drug benefits, also beefed up reimbursements to private-plan suppliers.
“Reimbursement rates have increased, and that made it more attractive for private companies to enter that market, not only in Puerto Rico but across the country,” Wise remarked.
Because relatively few Puerto Rican seniors have signed on to private Medicare, the island has a unique appeal, he said.
“The total potential market in Puerto Rico for Medicare Advantage plans is $3 billion,” Wise said. “As the second-largest HMO there, we think we’ll be able to capture a significant market share.”
Deutsche Bank AG advised MCS. For legal advice the company turned to Goodwin Procter LLP’s David Watson and Stuart Rosenthal.
Skadden, Arps, Slate, Meagher & Flom LLP’s Robert Pincus was counsel to JLL, which had no outside financial adviser.
© Copyright 2008 JLL Partners