Advisory Board splits health and education arms in $2.6 billion sale

01 September 2017 3 min. read

The Advisory Board Company has confirmed it has agreed to sell its health care and education consulting businesses following pressure from activist investors Elliot Management. The sale of its health segment to Optum, part of UnitedHealth Group, was worth $1.3 billion including debt, while Advisory Board's education business will be sold separately to private-equity firm Vista Equity Partners for $1.55 billion.

Founded in 1979, The Advisory Board Company is a professional services firm that uses a combination of research, consulting and technology to improve the performance of clients in the health care and educational sectors. Following a period of scrutiny from shareholders, the firm, which saw revenue in the first quarter of 2017 fall by 3.1% on the same period last year, Advisory Board said in February it would explore options, including a sale of part or the entire company, after activist share-holders Elliott Management, who own almost a 5% stake in the company as of June 30th, said its stock was “significantly undervalued”. The firm initially hired Goldman Sachs Group and Allen & Company to work on potential plans.

Activist investors are often motivated by a desire to overhaul management by encouraging new ownership of a company. The deal that has since been brokered has subsequently seen Advisory Board become the subject of a split acquisition worth a total of $2.6 billion, with US health and insurance giants United Health Group and a private investment firm due to divvy up the spoils. Vista Equity Partners will acquire the Avisory Board’s education business for $1.55 billion.

The Advisory Board Company, Optum and Vista Equity Partners

The health consulting arm of the Washington-DC headquartered firm will meanwhile become part of UnitedHealth’s advisory practice, Optum. By way of the take-over, Optum seeks to expand its already substantial presence in the health care consulting space. Advisory Board, a company that works extensively with hospitals and other providers, adds further clout to Optum’s offering in the health sector, following the acquisition of Surgical Care Affiliates and the Optum pharmacy benefit manager.

The Advisory Board has an estimated 3,800 employees, and brings in roughly $807 million in annual revenue. The transactions will still require shareholder approval and are expected to close in late 2017 or early 2018, The Advisory Board said. Previous firms that have split to ramp up growth include in consulting Booz Allen Hamilton, that split into Booz Allen and Booz & Company in 2008. As health costs continue to ramp up world-wide, consulting in the sector is becoming a lucrative prospect. A number of healthcare conglomerates have meanwhile invested heavily in consulting solutions over the recent years. Earlier in 2017, UDG Healthcare obtained US management consulting firm Vynamic in a deal worth $22 million.

Speaking following the announcement of the two deals, the chair and CEO of The Advisory Board, Robert Musslewhite, said, “After careful consideration, we determined that transactions with Optum and Vista Equity partners allow us to accelerate the success of our health care and education businesses while realising immediate value for stockholders. We believe this is the best course of action for our stockholders, members and employees.”