Innovation drives capitalism, and innovation was the catalyst that started the sale and growth of WEX Health, formerly known as Evolution 1.
Evolution Benefits launched the use of a prepaid debit card that customers could use for out-of-pocket health-care expenses, such as co-pays and prescription drugs. Prior to that, claimants had to file paper claims. Now, they could swipe the card at a doctor’s office or pharmacy, and the money would be deducted from a dedicated, pretax health-care account.
The innovation caught the interest of private equity firm Genstar Capital, which bought Evolution Benefits in 2010. Thus recapitalized, the company purchased Lighthouse1 the following year. Lighthouse1 had developed a cloud software platform, catching Genstar’s interest. Together, the two companies formed Evolution1.
“It took off like a rocket, and if you are asked to have a seat on a rocket, you should fasten your seat belt and have fun on the ride,” says Lynda Godkin, senior vice president and general counsel of WEX Health.
Now armed with the card and the software, the company could differentiate itself in a market moving rapidly toward cloud-based, service-oriented software.
Genstar planned to grow the company as quickly as possible and cash out. In 2014, it put Evolution1 up for sale. The timing couldn’t have been better. Godkin found herself drafting almost thirty nondisclosure agreements with interested parties. She worked on them with Deutsche Bank, Genstar’s investment banking firm. “You could see all the stars aligning,” she says. “It was an exciting time to be working as a lawyer for a company in tremendous growth mode.”
“People understand that if you want to get the deal done, you have to get the resources behind it.”
One of the agreements Godkin drafted was with WEX, which began a bidding war with one of Evolution1’s vendors to purchase the company.
WEX, a corporate payments company founded in 1983, wanted the prepaid debit card for the work it did with long-haul truckers, who could use it to pay for gas and other work-related costs. WEX’s Chief Executive Officer Melissa Smith was also interested in diversifying into the health-care field.
With the two parties poised to bid, Godkin and her team—one other lawyer and a paralegal—worked in a virtual data room to handle hundreds of due diligence requests the company fielded from the two bidders. The requests brought in leaders from legal, finance, tax, human resources, and other departments.
As with any acquisition, this part of the process involved negotiation internally as well as externally. “You want folks to remember that you’re acquiring a company because it’s successful, and you want to preserve what’s great about it,” Godkin says. “You don’t want to affect the underlying business by dragging everyone into the transaction. You need to make sure you keep the business running successfully while undergoing due diligence and transaction work. That’s a skill I credit [Chief Executive Officer] Jeff Young with, for being able to provide that leadership to the company.”
In addition to handling due diligence requests, Godkin and her team worked with an outside firm to work out the stock purchase agreement. “A deal like this is hard to do with a small staff, but part of my job is to make sure that if we don’t have the resources, we are pulling the resources in that we need,” Godkin says. “For highly specialized legal issues, I hired outside lawyers (apart from Genstar’s). My business clients were great in allowing me to hire a temporary paralegal to help with all of the exhibits. People understand that if you want to get the deal done, you have to get the resources behind it.”
Another important part of negotiations was to emphasize the importance of Evolution1’s staff, Godkin says, though they weren’t privy to the deal until it closed. “It’s not just the leadership who is making the company successful,” she says.
In the bidding war, WEX had become the clear leader. Godkin says she never thought the company would back out, but with so much money at stake, leaders at Evolution1 remained tense.
Godkin recalls waiting in the chief financial officer’s office. Both of them drummed their fingers on the table while they waited for the call for final confirmation of the deal.
And it came. Evolution1 became WEX Health.
“I’ve done a lot of deals, and there are usually some obstacles,” Godkin says. “But with the leadership we have, it was very smooth from start to finish.”