NextGen Healthcare Inc., a healthcare technology software company with deep ties to Orange County, could be sold at a price topping $1 billion, according to a report.
The provider of cloud-based software that helps doctors and dentists manage patient records (Nasdaq: NXGN) has hired Morgan Stanley to advise it on discussions with potential buyers, Reuters reported on Aug. 23, citing unidentified people familiar with the matter.
NextGen shares rose about 9.2% in the two trading sessions following the report. At press time, it had a $1.2 billion market cap.
If sold, it would be the latest saga for a company that has faced its share of turmoil in recent years, including a proxy battle, an unexpected CEO change and a federal investigation regarding sales practices.
Software Focus
NextGen was founded under the Quality Systems Inc. name in 1974 by OC resident Sheldon “Shelly” Razin, who built ready-to-use software for dentists.
The company eventually morphed into a subscription software model to help thousands of clinics that offer outpatient services, via electronic health record software and practice management systems.
By the 2000s, the company employed more than 1,200 workers. During that decade, the company’s shares rose more than 2,000% to about $50 each. However, the shares fell in half in 2011 and haven’t recovered, hovering below $20 each for much of the past decade.
2021 Board Battle
In 2021, a simmering dispute among board members broke into the open.
Razin, who at that time owned 15% of the shares, blasted the company’s “anemic organic growth, deteriorating margins and sustained underperformance,” he said in a 2021 letter to investors.
On the other side of the dispute was most of NextGen’s board of directors, including Chairman Jeff Margolis, an OC resident who among other positions is also a director at Orange-based Alignment Healthcare Inc. (Nasdaq: ALHC) and at Hoag Memorial Hospital Presbyterian in Newport Beach.
Razin lost that proxy battle and, in the process, lost his seat on the board of directors.
Razin died last January at the age of 85.
“Shelly and I never stopped being friends throughout that proxy battle,” Margolis told the Business Journal at the time. “That was an unfortunate chapter in a long collaboration.
Shelly said to me, ‘Even though I lost the proxy battle, I felt like I won because of where we ended up with the leadership of the company.’”
The company last week declined to discuss the Reuters article, saying it doesn’t comment on market rumors.
No HQ
Just before the proxy battle exploded, Rusty Frantz unexpectedly resigned as CEO, president and a board director, citing personal reasons. NextGen a few months later hired David Sides as CEO.
Earlier that year, the company had officially moved its headquarters from Irvine’s Lakeshore Towers office complex to Atlanta, saying that city was more centrally located for its executives.
Late last year, NextGen said it didn’t have a formal headquarters, as much of its employees worked remotely.
The company currently leases about 8,000 square feet in Irvine, which while well below its prior footprint in the city still represents its biggest office lease companywide, according to NextGen’s latest annual report.
It has either vacated or subleased an additional 16,000 square feet of space in Irvine, according to the annual report.
Double-Digit Growth
In the past decade, NextGen’s growth hasn’t been the eye-popping type that investors crave.
While revenue declined in fiscal 2019, it’s since recovered, growing 9.5% to $653.2 million in fiscal 2023. Analysts are estimating 10% growth in fiscal 2024 and another 7.3% in fiscal 2025.
NextGen has the potential to grow revenue more than 10%, Sides said last month when discussing the company’s fiscal first-quarter results.
“The company executed across all fronts and is well positioned to deliver double-digit revenue growth, create operating leverage, and demonstrate effective capital management,” Sides said in a July 24 statement.
Competition
NextGen hasn’t recently impressed Wall Street.
Another rival, Waystar Inc., may receive a much higher valuation around $8 billion if it goes public, Reuters said.
Before the Reuters report, NextGen shares were down 9% year-to-date, underperforming a 31% rise in the Nasdaq Composite Index.
The company agreed to pay $31 million last month to settle claims by U.S. prosecutors that it misrepresented the capabilities of its software and paid users kickbacks to get them to recommend it. The company denied wrongdoing; other healthcare document managers have made similar settlements.
Another rival, healthcare information technology platform Nextech, agreed to be sold to private equity firm TPG for $1.4 billion.
Reuters said dealmaking in the healthcare sector has increased as private equity firms bet on an industry that has traditionally proved resilient in economic downturns.
Healthcare deals totaled $187.8 billion globally during the first half of 2023, an increase of 43% from a year ago, Reuters said, citing the marketing firm Refinitiv.
