PE-backed Passport Health nears deal to buy Data Systems Group: sources

NEW YORK Mon Jan 7, 2013 12:04am EST

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NEW YORK (Reuters) - Passport Health Communications Inc, a healthcare software company partly controlled by private equity firm Spectrum Equity, is close to announcing a deal to buy Data Systems Group, according to three people close to the matter.

Although financial details of the transaction could not be obtained, a deal with privately held Data Systems Group, which develops software products that process medical claims, will give Passport access to more than 200 hospitals and 85 physician sites in 20 states.

A deal could come as soon as Monday, the people said, requesting anonymity as the talks are private. Spokesmen for Spectrum and Passport declined to comment. Data Systems Group officials were not available for comment.

Data Systems Group, which was formed in 1971, will also bring extensive institutional knowledge of California Medicaid and Blue Shield Medicare in that state to Passport's existing businesses, the person said.

In 2008, Spectrum and a group of investors including Great Hill Partners and Goldman Sachs Specialty Lending Group, provided $232 million in equity capital to Passport, giving the new investors a controlling stake in the Franklin, Tennessee-based software service company.

Passport, which competes with larger healthcare technology rivals McKesson and Cerner Corp (CERN.O), has since announced two acquisitions and appointed former McKesson Corp (MCK.N) executive Scott MacKenzie as its chief executive officer.

Passport's annual revenue is in excess of $100 million a year while the company has seen "strong double digit organic growth" and "strong cash flow margins", one of the people said. Its products are delivered to more than 2,300 U.S. hospitals and over 8,600 other healthcare facilities in 50 states.

(Reporting By Nadia Damouni; Editing by Matt Driskill)

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