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R1 RCM (NASDAQ:RCM) was downgraded to hold from buy at Deutsche Bank after the shares surged 25% on Monday after New Mountain offered to buy the company for $13.75 a share.
Deutsche Bank downgraded RCM as the shares closed at $14.46 on Monday, well above the New Mountain offer, at least partially after another sell-side analyst predicted a potential bidding war and an RCM (RCM) holder said the offer price "meaningfully" undervalued the company.
The last comparable transaction in the space was UnitedHealth's (UNH) acquisition of Change Healthcare, which was completed at just under 12x forward-year EBITDA. The New Mountain offer implies a valuation of 114x 2024 consensus adj. EBIDTA, Deutsche Bank analyst George Hill wrote in a note after the close on Monday.
"Thus, we suspect investors hoping for a multiple on RCM shares of >15x from NMC in this transaction process are likely to be disappointed," Hill, who has a $15 target price on RMC wrote in a note after the close on Monday.
Hill also highlighted that NextGen Healthcare's sale to Thoma Bravo in November was done at an implied valuation of 11.9x 2024 EBITDA est.
"We suspect NMC is being opportunistic from a timing perspective, but we also recognize that with the Providence and Acclara transactions, RCM could be facing some time-consuming and expensive integration and onboarding that might better be done in private," Hill added.
Citi analyst Daniel Grosslight said in a Monday note that the takeover offer may spur a bidding war and the company could be valued at 11-14x 2025 EBITDA in a deal, representing a stock price of $15-$20 a share.
RCM holder Coliseum Capital Management, which said along with managed funds and accounts it owns over 10 million shares of RCM and is a top 5 holder, believes that the New Mountain offer is too low.
"We believe this proposal meaningfully undervalues the Company and is not in the best interest of shareholders," Coliseum's Chris Shackelton and Adam Gray wrote in a letter to RCM's board on Monday.
R1 RCM reported Q4 results on Tuesday. RCM shares rose 4.4%.