Cano Health acquires Miami-based University Health Care for $600M to grow primary care group

On the heels of going public via a SPAC deal, primary care group Cano Health has acquired Miami-based University Health Care for $600 million.

The transaction includes $540 million in cash and $60 million in equity and was financed through cash on hand, incremental borrowings under its existing credit facilities and common equity issued to University’s shareholders, according to a company press release.

Cano Health borrowed $295 million under its existing credit facilities to partially fund the University transaction.

Cano Health, a medical provider backed by billionaire Barry Sternlicht, operates value-based primary care centers and supports affiliated medical practices that specialize in primary care for seniors with more than 500 primary care physicians across 14 markets in Florida, Texas, Nevada and Puerto Rico.

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University Health Care and its affiliates have a 25-year history of providing comprehensive primary care to communities in South Florida.

The deal will significantly expand Cano Health's market share in Florida, growing its footprint to 13 University facilities and over 300 University staff and affiliate providers serving approximately 24,000 Medicare Advantage members.

With the deal, Cano Health expects to continue to grow by serving its combined approximately 143,000 members in 88 medical centers, with more than 1,000 staff and affiliate providers across the country. 

Cano Health executives said University’s services align with its model, which provides members access, quality and wellness through a high-touch and high-tech model of care. 

Cano Health now estimates full-year 2021 adjusted EBITDA between $100 million and $110 million and reaffirms its full-year 2021 membership guidance of 154,000 to 162,000 members and revenue guidance of between $1.4 billion and $1.5 billion.

University Healthcare's estimated standalone full-year 2021 revenue is approximately $355 million, and adjusted EBITDA is $37 million.

"This transaction is a significant step forward for Cano Health and our patients, as it will allow us to bring our brand of affordable, high-quality primary care to more patients in the Florida market and accelerate Cano Health’s profitable growth,” said Marlow Hernandez, M.D., co-founder, chairman and CEO of Cano Health, in a statement.

"University is a premier provider of value-based care, and we are thrilled to welcome the world-class University team to the Cano Health family. Our model has proven effective at providing industry-leading outcomes while controlling costs, and we look forward to delivering care at a larger scale than ever before," he said.

By combining with University, Cano Health will add approximately 24,000 Medicare Advantage members. The deal also increases Cano Health's capitated Medicare organic membership and revenue growth due to a significant increase in clinical capacity and leveraging of Cano Health’s robust brand in the markets in which University operates, company executives said.

Cano Health will be able to expand its proprietary population health management technology platform, called CanoPanorama, to deliver improved health incomes to a larger set of patients. 

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The acquisition delivers on Cano Health’s strategic objective to build, buy and manage medical practices. Cano Health executives say the company continues to pursue three key initiatives to realize the massive opportunity in value-based primary care: organic growth, new market entry and targeted acquisitions. 

"Protecting the legacy of our family-owned business, our relationships with providers, and our deep ties to the local community has always been important to us. Our priority every step of the way was the wellbeing of our patients and the job security of our employees,” said Maggie Quevedo, co-founder of University, in a statement.

Cano listed on the New York Stock Exchange this month through a merger with a special purpose acquisition company, or SPAC, sponsored by Sternlicht, chairman of Starwood Capital Group Management. The merger with SPAC Jaws Acquisition Corp. was announced in November 2020 in a deal worth $4.4 billion, including debt, Reuters reported.

The primary care market has been heating up as tech-enabled providers like One Medical and Forward look to shake up the $260 billion market.

This month, One Medical announced plans to acquire Iora Health, another primary care competitor focused on Medicare patients, in a $2.1 billion deal.

There's also a growing market for private Medicare Advantage plans.

Oak Street Health, a value-based care primary care startup specifically targeting Medicare-eligible patients, went public in 2020 with a $328 million initial public offering. Clover Health, a tech-enabled Medicare Advantage plans, also went public last year through a SPAC deal that valued the company at $3.7 billion in enterprise value.

UnitedHealth Group's Optum unit also is betting on value-based care arrangements. OptumCare, the direct patient care segment, employs 53,000 physicians in 1,450 clinics throughout the U.S. OptumCare's physicians currently treat 19 million patients. The company treats 1.3 million Medicare Advantage or dually eligible members under global capitation.