Connecture, WI Health Insurance Software Company, Plans $86M IPO

In a rare move for Wisconsin software companies, Brookfield-based Connecture plans to go public. The company intends to raise $86.25 million in an initial public offering on the Nasdaq stock exchange, according to documents filed with the SEC yesterday.

While the IPO probably won’t turn heads nationally, Connecture’s filing comes at a time when tech IPOs have somewhat slowed down. It should also be noted that Connecture’s filing is only the first step towards trading on the Nasdaq.

But if Connecture follows through and has a successful IPO, it would be noteworthy for Wisconsin, which doesn’t have too many publicly traded software companies. The current list includes Brookfield-based fintech company Fiserv (NASDAQ: FISV) and Madison-based enterprise webcasting software company Sonic Foundry (NASDAQ: SOFO). Enterprise imaging software provider Merge Healthcare (NASDAQ: MRGE) was based in West Allis, then Hartland, and now calls Chicago home.

In recent years, venture-backed Wisconsin software startups have usually opted to sell to a larger company, rather than go public. An Xconomy analysis last year of Wisconsin exit activity from 2008 through 2013 found 18 acquisitions, but just one IPO—biotech company Cellular Dynamics (NASDAQ: ICEL).

Connecture provides Web-based software that helps consumers shop for health insurance plans. The company was founded in 1999 as SimplyHealth and was based in Atlanta for most of its existence. It has gone through several evolutions, merging with Riverwood Solutions in 2004 and acquiring Insurix in 2011 and DRX last year. In 2012, Connecture relocated to Wisconsin, thanks in part to state tax incentives, according to the Milwaukee Business Journal.

The company was co-founded by Dan Maynard, who now leads West Bend, WI-based GrandCare Systems. Connecture’s CEO is former Thomson Reuters exec Doug Schneider.

Connecture has raised more than $41 million from investors including Greenwich, CT-based private equity firm Great Point Partners; Louisville, KY-based Chrysalis Ventures; Memphis, TN-based private equity firm SSM Partners; and Austin, TX-based LiveOak Venture Partners, according to SEC documents. About half of that amount came in a 2012 funding round. WebMD was also an early Connecture investor, SEC documents show.

Connecture is trying to take advantage of the wholesale changes being made in the way health insurance is purchased, thanks largely to the Affordable Care Act. Responsibility for buying health insurance is shifting from employers to consumers, more people have access to healthcare, and new public exchanges mean individuals are faced with more health plan options than ever before, Connecture says. The company aims to help consumers navigate these choices and make insurance distribution more cost-effective for health plan providers and insurance brokers.

Connecture, which had 429 employees as of July 31, counts more than 70 health plans as customers, and its software powers more than 30 private, state, and federal healthcare exchanges, the company says. Its software is also available to Medicare enrollees.

Connecture’s finances show that though it has gained more traction in the marketplace, it’s not profitable. In fact, it bled more red ink last year as it bumped up spending on R&D and sales and marketing. The company posted a $26.4 million net loss in 2013, compared with a $16.8 million net loss the year before. But revenue nearly doubled to $58.3 million last year, up from $29.6 million in 2012. The 2013 revenue increase was driven largely by the acquisition of DRX, a provider of Medicare comparison software, as well as higher sales to state and private exchange customers, the SEC filing shows.

Through the first six months of 2014, the company narrowed its net loss to $12.1 million from $18 million in the first half of 2013. The company generated $35.2 million in sales in the first half of this year, up from $19.3 million in the first half of 2013.

Morgan Stanley and JPMorgan are the lead underwriters for Connecture’s IPO, along with underwriters Wells Fargo Securities, Raymond James, and William Blair.

Jeff Engel is a senior editor at Xconomy. Email: jengel@xconomy.com Follow @JeffEngelXcon

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