Oct 22 (Reuters) - Healthcare benefits provider UniversalAmerican Corp sued private equity firm GTCR LLC onTuesday to undo a $222.3 million acquisition it said was inducedby fraud, a day after GTCR filed its own lawsuit to blockUniversal's claims.
The dispute goes to the heart of the business of the privateequity industry, where firms buy companies and hope to sell themlater at a profit. Finding interested buyers and avoiding thetaint of fraud are crucial to a firm's ability to earn bigprofits for itself and its investors.
In a complaint filed on Tuesday in the U.S. District Courtin Delaware, Universal claimed that GTCR misled it about thefinances and business prospects of APS Healthcare Inc ("APS"), ahealthcare 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 andlosing some or all of its business with other large customers.
"Defendants engaged in a deliberate campaign to conceal thetruth about APS," Universal said. "The avalanche of bad news ...the complete evaporation of APS's income within months, and thesheer number of misrepresentations and omissions in the mergeragreement ... are all telltale signs of fraud."
The lawsuit was filed just 16 hours after PartnersHealthcare Solutions Holdings LP, the GTCR company that soldAPS, filed its own lawsuit in Delaware Chancery Court. It seeksa declaration that Universal's claims are baseless and therelease of sums held in escrow after the merger closed.
While admitting that APS' earnings in 2012 "fell well shortof what both parties had hoped," the GTCR company called thedispute "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, whileGTCR is based in Chicago.
A Universal spokeswoman declined to comment. GTCR did notimmediately respond to a request for comment.
The cases are Universal American Corp v. Partners HealthcareSolutions Holdings LP et al, U.S. District Court, District ofDelaware, No. 13-01741; and Partners Healthcare SolutionsHoldings LP v. Universal American Corp, Delaware Chancery Court,No. 9022.
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