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Thoma Bravo Acquires NextGen – Merger Arbitrage Mondays

  • September 11, 2023

Key Highlights

  • Thoma Bravo adds NextGen (NXGN) to its healthcare IT portfolio, which includes companies like Bluesight, Stratasan, and Mediware.
  • Kroger (KR) will sell 413 stores to C&S Wholesale Grocers to secure antitrust approval for its $24.6 billion merger with Albertsons (ACI).
  • Intercontinental Exchange (ICE) completes the acquisition of Black Knight (BKI).

NextGen Healthcare (NXGN)

On August 23, 2023, Reuters reported that healthcare technology solutions provider NextGen Healthcare was exploring options that included a sale of the company.

Originally known as Quality Systems, Inc., NextGen traces its origin back to 1973, when it was founded by Sheldon “Shelly” Razin. The company went public in 1982. After two decades of diverse acquisitions, NextGen came under the umbrella of QSI as its subsidiary in 2001.

NextGen Healthcare delivers healthcare technology solutions within the United States. The company’s offerings encompass clinical care solutions like NextGen Enterprise EHR and financial solutions, including NextGen Enterprise PM.

NextGen Platforms

Sheldon Razin, who passed away earlier this year, nominated four new candidates to the company’s board in 2021 to address years of poor performance and stagnation. Despite receiving high ratings for its ambulatory EHR and PM products from organizations like KLAS, the company’s shares had fallen by 18% that year. Razin and fellow director Lance Rosenzweig raised concerns about the imperial boardroom culture under the leadership of Jeffrey Margolis, the Chair of the Board, in a message to stakeholders.

According to Definitive Healthcare’s report, NextGen EMR currently commands a 4.8% market share but is under considerable market pressure, particularly with Epic’s entry into the ambulatory sector through its Garden Plot offering targeting independent medical groups.

Top 10 ambulatory EHR vendors by market share

Source: Definitive Healthcare

In July, NextGen reached a $31 million settlement with the Department of Justice for alleged False Claims Act violations, involving misrepresentation of the capabilities of certain versions of its EHR software.

Following the news of the potential deal on August 23, NXGN’s stock price rallied over 5%. According to Bloomberg, NextGen had attracted attention from various other buyout firms, before discussions gained momentum with Thoma Bravo.

Thoma Bravo and NextGen entered into a definitive agreement on September 6, 2023. Under the terms of the agreement, NextGen Healthcare shareholders will receive $23.95 per share in cash,  representing a premium of 46.4% to the company’s unaffected closing stock price on August 22. Thoma Bravo is essentially paying NextGen 43 times trailing free cash flow.

The NextGen acquisition is expected to broaden Thoma Bravo’s customer reach within its healthcare IT portfolio companies. Thoma Bravo provides a range of solutions, including medication management, cardiovascular imaging, healthcare analytics, and identity and access authentication, among others.

In a data breach notification filed with the Maine attorney general’s office in May 2023, NextGen Healthcare confirmed that hackers had accessed the personal data of 1.05 million patients, including approximately 4,000 Maine residents.

Leveraging solutions from Thoma Bravo’s robust portfolio of cybersecurity firms can bolster NextGen’s product security. This becomes especially crucial following the significant breach, as reinforcing security measures will play a pivotal role in regaining customer trust.

The deal is expected to be completed in the fourth quarter of 2023, and the current spread on the deal is 1.2% and 3.92% annualized.


Merger Arbitrage activity declined last week with one new deal announced and four completed.

You can find all the active deals listed below in our Merger Arbitrage Tool (MAT) which automatically updates itself during market hours.

Merger Arbitrage

Deal Statistics:

Total Number of Deals Closed in 2023125
Total Number of Deals Not Completed in 202310
Total Number of Pending Deals
Cash Deals41
Stock Deals16
Stock & Cash Deals3
Special Conditions8
Total Number of Pending Deals68
Aggregate Deal Consideration$765.05 billion

New Merger Arbitrage Deals:

  1. The acquisition of NextGen Healthcare, Inc. (NXGN) by Thoma Bravo for $1.66 billion or $23.95 per share in cash. We added NXGN as a potential deal to the Deals in the Works section on August 23, 2023, and the price after the news of the potential deal came out was $17.24.

Deal Updates:

  1. On September 6, 2023, Fiesta Restaurant Group (FRGIannounced the expiration of the 30-day “go-shop” period under the terms of the previously announced merger agreement.
  2. On September 6, 2023, Orange Capital Ventures announced its intention to vote in favor of the proposed internalization and merger transaction after reaching out to management, performing a thorough review of Global Net Lease’s (GNL) presentation filed on August 28, 2023.
  3. On September 7, 2023, Magellan Midstream Partners (MMP) announced that Glass Lewis & Co.  recommends that unitholders vote “FOR” the pending merger with ONEOK (OKE).
  4. On September 7, 2023, Paratek Pharmaceuticals (PRTK) announced that Institutional Shareholder Services Inc. has recommended that stockholders vote FOR the company’s previously announced definitive agreement to be acquired by Gurnet Point Capital.
  5. On September 7, 2023, Endeavor Group Holdings (EDR) (and World Wrestling Entertainment (WWE) announced they expect to close the previously announced transaction to form TKO Group Holdings, Inc. on September 12, 2023, at which time TKO will begin trading on the New York Stock Exchange under the ticker symbol “TKO.”
  6. On September 8, 2023, Veritiv Corporation (VRTV) by Clayton, Dubilier & Rice, LLC received a Premerger Notification from the Premerger Notification Office of the FTC and the Antitrust Division of the DOJ notifying them that the waiting period under the HSR Act commenced on August 11, 2023.
  7. On September 8, 2023, Capri Holdings Limited (CPRI) by Tapestry (TPRmade the filings required under the HSR Act on August 31, 2023. The Merger is also subject to clearance or approval under the antitrust laws in Australia, Canada, China, the EU, Japan, Korea, and the United Kingdom. The Merger is also subject to approval by the European Commission under the EU Foreign Subsidies Regulation.

Approvals:

  1. September 5, 2023: China’s State Administration for Market Regulation approved Emerson Electric’s (EMR) planned purchase of National Instruments (NATI) on August 23, 2023.
  2. Heritage-Crystal Clean (HCCI) announced that the waiting period under the HSR Act expired on September 1, 2023.
  3. On September 8, 2023, shareholders of Necessity Retail REIT (RTLapproved three proposals that will allow Global Net Lease (GNL) to acquire the company.
  4. Chase Corporation (CCF) announced that the waiting period under the HSR Act expired on September 5, 2023.
  5. On September 8, 2023, Amedisys (AMED) announced that its shareholders approved the company’s acquisition by UnitedHealth Group Incorporated (UNH).

Hurdles:

  1. On September 5, 2023, the Irish High Court set a court hearing for October 5, 2023 to consider the application of Horizon Therapeutics (HZNP) to sanction the proposed scheme of arrangement under Chapter 1 of Part 9 of the Irish Companies Act 2014 pursuant to which Pillartree Limited, a wholly owned subsidiary of Amgen (AMGN) will acquire Horizon.
  2. September 6, 2023: According to Bloomberg, Boaz Weinstein and his group of bidders revised their offer to buy Sculptor Capital Management (SCU), seeking to address some of the concerns the board’s special committee outlined in a proxy filing last week.
  3. On September 8, 2023, Kroger (KRhas agreed to sell 413 stores to C&S Wholesale Grocers in a divestiture designed to help win antitrust approval for its $24.6 billion merger with Albertsons (ACI).

Closed Deals:

  1. The acquisition of Conformis (CFMS) by restor3d on September 5, 2023. It took 74 days for this deal to be completed.
  2. The acquisition of Black Knight (BKI) by Intercontinental Exchange (ICE) on September 5, 2023. It took 489 days for this deal to be completed.
  3. The acquisition of Quotient Technology (QUOT) by Neptune Retail Solutions on September 5, 2023. It took 77 days for this deal to be completed.
  4. The acquisition of Surface Oncology (SURF) by Coherus BioSciences (CHRS) on September 8, 2023. It took 84 days for this deal to be completed.

Weekly Spread Changes:

The table below shows weekly spread changes between September 1, 2023, and September 8, 2023.

SymbolQuoteAcquiring
Company
Acquiring
Company Quote
Current
Spread
Last Week
Spread
Spread Change
Weekly
Deal
Type
SAVE15.61JetBlue Airways Corporation (JBLU)5.18598.59%87.88%10.71%All Cash
ACER0.895Zevra Therapeutics, Inc. (ZVRA)5.26-31.84%-42.28%10.44%Special Conditions
IRBT36.345Amazon (AMZN)138.2442.39%33.55%8.84%All Cash
WWE98.05Endeavor Group Holdings, Inc. (EDR)21.818.11%1.36%6.75%Special Conditions
DM1.58Stratasys Ltd. (SSYS)13.575.64%2.13%3.51%All Stock
CELL0.985Bruker Corporation (BRKR)61.311.52%2.92%-1.40%All Cash
SCU12.16Rithm Capital Corp. (RITM)10.13-8.31%-5.11%-3.20%All Cash
AAIC4.72Ellington Financial Inc. (EFC)13.191.13%5.65%-4.52%All Stock
ACI23.63The Kroger Co. (KR)46.9415.32%21.33%-6.01%Special Conditions
RTL7.535Global Net Lease Inc. (GNL)11.270.21%7.44%-7.23%All Stock

Top 10 Merger Arbitrage Deals With The Largest Spreads:

Please do your own due diligence on deals with large spreads. Some of these large spreads might be related to regulatory issues or because of the way the deal is structured. We classify some of these deals as “special situation” deals in our merger arbitrage tool and provide additional details to help with the analysis. There may be unique situations related to special dividends, spinoffs, proration, etc. that need to be accounted for when looking at these spreads.

SymbolAnnounced
Date
Acquiring
Company
Closing
Price
Last
Price
Closing
Date
ProfitAnnualized
Profit
SAVE07/28/2022JetBlue Airways Corporation (JBLU)$31.00$15.6106/30/202498.59%122.40%
IRBT08/05/2022Amazon (AMZN)$51.75$36.34502/05/202442.39%104.53%
ACI10/14/2022The Kroger Co. (KR)$27.25$23.6303/31/202415.32%27.54%
PNM10/21/2020Avangrid, Inc. (AGR)$50.30$44.2512/31/202313.67%44.56%
SGEN03/13/2023Pfizer Inc. (PFE)$229.00$204.4701/31/202412.00%30.62%
AMED06/26/2023UnitedHealth Group Incorporated (UNH)$101.00$93.3212/31/20238.23%26.82%
WWE04/03/2023Endeavor Group Holdings, Inc. (EDR)$106.00$98.0509/12/20238.11%1479.73%
CPRI08/10/2023Tapestry, Inc. (TPR)$57.00$52.7806/30/20248.00%9.93%
NGMS05/14/2023Aristocrat Leisure Limited (ALL.AX)$29.50$27.3305/14/20247.94%11.73%
SQNS08/07/2023Renesas Electronics Corporation (N/A)$3.03$2.8203/31/20247.45%13.39%

Deals In The Works

One new potential Merger Arbitrage deal was added to the ‘Deals In The Works‘ section last week.

  1. September 6, 2023: According to Reuters, Alteryx (AYX), a data analytics software company with a market value of $2.2 billion, has been working with investment bank Qatalyst Partners to explore a potential sale after attracting takeover interest.

Updates:

  1. According to Reuters, Tarsadia Investments urges Cue Health (HLTH) to review its strategy, including a possible sale.
  2. According to CNBC, CEO Tomer Weingarten said the cybersecurity firm SentinelOne (S) isn’t for sale, despite rumors.
  3. Hollysys (HOLI) disclosed that it received a request from shareholders for a special shareholder meeting and sets September 6, 2023, as the record date for holders to demand the special meeting.
  4. According to Reuters, Alteryx (AYX), a data analytics software company has been working with investment bank Qatalyst Partners to explore a potential sale after attracting takeover interest.

SPAC Arbitrage

SPAC Business Combination

  1. On September 5, 2023, ScanTech Identification Beam Systems and Mars Acquisition (MARX) announced that they have entered into a definitive business combination agreement that will result in ScanTech becoming a publicly listed company.
  2. On Septemeber 6, 2023, Andretti Acquisition Corp. (WNNR) and Zapata Computing entered into a definitive business combination agreement.
  3. On September 7, 2023, Brand Engagement Network and DHC Acquisition Corp. (DHCAentered into a definitive business combination agreement that is expected to result in the combined company being listed on Nasdaq under the symbol “BNAI”.
  4. On September 8, 2023, Zalatoris Acquisition Corp. (TCOAentered into a definitive business combination agreement and Plan of Merger with Millymont Limited.

List of all pending Merger Arbitrage deals:

Disclaimer: I have long positions in Activision Blizzard (ATVI) and Spirit Airlines (SAVE). Please do your own due diligence before buying or selling any securities mentioned in this article. We do not warrant the completeness or accuracy of the content or data provided in this article.