SpendMend LLC secured major investments in 2022 from Morgan Stanley Capital Partners and two major health systems, including the venture capital arm of Grand Rapids-based Corewell Health.
Through the investment that closed last spring, New York City-based Morgan Stanley Capital Partners acquired a majority stake in SpendMend, a Grand Rapids-based firm that helps hospitals and health systems have deeper visibility into their costs through a cost management platform. The Morgan Stanley investment established a $390 million enterprise value for SpendMend.
Chicago-based Sheridan Capital Partners, a private equity firm that invests in health care companies, retained a minority stake in SpendMend.
The investment enabled SpendMend to add a solution for purchase service optimization through the acquisition of New Jersey-based VIE Healthcare Consulting, as well as a software solution for pharmacy procurement and analytics with the acquisition of Draper, Utah-based Trulla LLC. SpendMend publicly announced both acquisitions in August.
“What Morgan Stanley has helped us do is build out this cost-cycle platform to furnish more and more, wider, deeper cost savings to health systems, and also provide visibility to their data and the spend that they don’t have,” SpendMend President Rob Heminger said. “Morgan Stanley helped us acquire and widen our service along that platform to get into certain sectors like purchasers and deeper into pharmacy and provide value in that realm as well.”
Subsequent investments in the company came from Corewell Health Ventures and Memorial Hermann Health System in Houston, Texas.
The 2022 investments earned SpendMend the 2023 MiBiz Deal of the Year Award in the health care category.
Corewell Health, formerly known as Spectrum Health prior to the merger a year ago with Beaumont Health, has been a SpendMend client for several years and eventually decided to invest in the company through its venture capital arm, according to Scott McLean, managing director of Corewell Health Ventures.
The venture capital firm’s seven-figure investment in SpendMend closed in August, McLean said.
The Corewell investment came at a time when health systems across the nation are ailing financially from higher costs, especially for equipment, supplies and labor.
“I like their mission because right now every health system is trying to figure out how to save more money,” McLean said at the time. “Year in and year out, we (Corewell) have saved millions of dollars working with them.”
SpendMend presently works with about 130 health systems, known within the industry as integrated delivery networks, that collectively operate more than 3,000 hospitals across the country. The company’s revenue model is based on how much it saves health system clients.
Sheridan Capital Partners acquired SpendMend in 2018 and by 2022 was approaching the end of its hold period, which coincided with the company wanting to pursue M&A and drive additional growth.
“We had been growing extremely fast since way back in 2015, and then in 2018 when we partnered with Sheridan, we grew over the next three years and we were starting to outgrow Sheridan. We wanted to make some key acquisitions, we wanted to grow the business further, and Sheridan had gotten to the end of their basic hold period with us and our capital needs,” CEO Dan Geelhoed said. “It was a good time for them to take some chips off of the table, retain equity in SpendMend, and then we went out and just identified another partner that was anxious to grow with us.”
Working with New York City-based investment bank Evercore Inc., SpendMend began a process to secure new investors and growth capital. Evercore took the company to market, “shopped their network,” and brought SpendMend about 20 prospective investors, Heminger said.
Geelhoed and Heminger filtered through the prospects and whittled down the list to three or four to talk with further. They ultimately chose Morgan Stanley as the best partner to drive growth.
“We were really looking for a partner, obviously, that their vision aligned with ours and brought things to the table that maybe we weren’t considering,” Heminger said. “With Morgan Stanley, in particular, they have this whole value-creation plan segment that they do and really pride themselves on that, which was really appealing to us. They come in and say, ‘Here’s your current state and here’s the vision long term, three to five years out, that we can get you there underneath this cost-cycle management umbrella.’ And we’re going to put the resources into this to make sure we drive toward that growth.”
Morgan Stanley’s vision for the company matched SpendMend’s with a focus on growing the number of clients served, upselling and cross-selling new services, finding strategic partners for M&A, ensuring the technology base and infrastructure was in place to support growth, and “last of all, make sure we take care of our people and the community,” Heminger said.
“They mirrored those five pillars,” he said.
In a May announcement on the investment, Morgan Stanley Managing Director and Head of Healthcare Steve Rodgers said SpendMend has a “best-in-class management team as they continue building a leader in cost cycle management and compliance management services to hospitals.”
“SpendMend’s proven track record of robust organic growth and its customer-centric approach are a testament to what Dan, Rob, and the SpendMend team have built over the years,” Rodgers said. “We look forward to working together to advance SpendMend’s market leadership in profit recovery and continue expanding the company through both organic growth and strategic add-on acquisitions.”