The Daily Deal
November 24, 2004

JLL Pumps $64M into Leading Puerto Rican HMO Medical Card
By David Carey

Private Equity JLL Partners, Inc. is expected to announce today that it has acquired a controlling stake in Medical Card System, Inc., Puerto Rico’s second-largest healthcare organization.

Steven Wise, a JLL vice president, said the New York buyout firm invested $64 million in equity capital in a leveraged recapitalization of MCS. He said a group of Puerto Rican banks helped finance the deal, whose overall value he wouldn’t specify. Nor would he disclose MCS’s revenue or cash flows.

Wise said JLL bought the stake from Felipe Benedit, who founded the HMO in 1982 and is its CEO, and from a group of minority owners that included Advent-Morro Equity Partners, Puerto Rico’s largest private equity house.

Advent-Morro sold a fraction of its minority interest in MCS but kept a large stake.

Benedit, who sold most of his stock, will resign as CEO but remain a member of the board. Wise said JLL, Carlos Muñoz, the HMO’s current president and new CEO, plan to build MCS, which already offers commercial HMO plans and Medicaid plans, into a major player in a third line of business, Medicare insurance, known as Medicare Advantage plans.

“The market for Medicare HMO s in Puerto Rico is underpenetrated”, Wise said. “There is really only one competitor that offers plans, a company called MMM Healthcare [Inc.]. We felt MCS was the best platform to invest in that market”.

San Juan-based MCS has two core product lines. Its longtime core business was to provide medical coverage to employees of major corporations on the island, such as Baxter International, Inc. and Pfizer, Inc. In 2000, MCS pushed into Medicaid services, a segment in which it now serves more than 500,000 people.

Now JLL and Muñnz have set their sights on private Medicare plans. MCS will start to offer such services in January. Wise observed that private plans received huge financial boost in 2003, when Congress passed the Medicare Modernization Act.

Deutsche Bank, AG advised MCS. For legal advice, the company turned to Goodwin Procter LLP’s David Watson and Stuart Rosenthal. Skaden, Arps, Slate, Meagher & Flom LLP’s Robert Pincus counseled JLL, which had no outside financial adviser.