Healthcare benefits provider Universal American Corp sued private equity firm GTCR LLC on Tuesday to undo a $222.3 million acquisition it said was induced by fraud, a day after GTCR filed its own lawsuit to block Universal's claims.
The dispute goes to the heart of the business of the private equity industry, where firms buy companies and hope to sell them later at a profit. Finding interested buyers and avoiding the taint of fraud are crucial to a firm's ability to earn big profits for itself and its investors.
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In a complaint filed on Tuesday in the U.S. District Court in Delaware, Universal claimed that GTCR misled it about the finances and business prospects of APS Healthcare Inc ("APS"), a healthcare management services provider it bought in March 2012.
Universal said "the ugly truth" emerged soon thereafter, with APS being declared in default by its biggest customer and losing some or all of its business with other large customers.
"Defendants engaged in a deliberate campaign to conceal the truth about APS," Universal said. "The avalanche of bad news ... the complete evaporation of APS's income within months, and the sheer number of misrepresentations and omissions in the merger agreement ... are all telltale signs of fraud."
The lawsuit was filed just 16 hours after Partners Healthcare Solutions Holdings LP, the GTCR company that sold APS, filed its own lawsuit in Delaware Chancery Court. It seeks a declaration that Universal's claims are baseless and the release of sums held in escrow after the merger closed.
While admitting that APS' earnings in 2012 "fell well short of what both parties had hoped," the GTCR company called the dispute "a straightforward case of buyer's remorse" that sought "to turn the seller into its scapegoat."
Universal and APS are based in White Plains, New York, while GTCR is based in Chicago.
A Universal spokeswoman declined to comment. GTCR did not immediately respond to a request for comment.
The cases are Universal American Corp v. Partners Healthcare Solutions Holdings LP et al, U.S. District Court, District of Delaware, No. 13-01741; and Partners Healthcare Solutions Holdings LP v. Universal American Corp, Delaware Chancery Court, No. 9022.
(Reporting by Jonathan Stempel and Greg Roumeliotis in New York. Editing by Andre Grenon)