The deal calls for Evolent, which took itself public in a $195.5 million offering last year, to pay $35 million in cash and another 5.84 million in EVH shares, which closed at $18.68 apiece yesterday (the stock was up 10.0% to $20.54 per share in mid-morning trading today as investors reacted to news of the buyout).
Another $50 million, or up to 3.9 million shares of EVH stock, is on the table as an earn-out option pegged to “future new business activity,” Evolent said. The Valence business is expected to boost revenues by $80 million to $85 million this year; the transaction is expected to close within 120 days, the company said. The buyout does not include Valence’s state insurance cooperative contracts, which are slated to be transferred to a separate entity owned by Valence’s shareholders.
“By adding Valence Health’s services to Evolent, we expect to strengthen our operational capabilities and expertise, expanding our ability to support provider organizations in delivering higher-quality, lower-cost care,” Evolent CEO Frank Williams said in prepared remarks. “Strategically, we have tightly aligned visions of improving health care through innovative technology and services that help providers succeed as the industry continues its adoption of value-based payment models. Practically, we expect the addition of Valence Health’s talented team and their experience in value-based administration will advance our ability to drive results for a broader set of clients, providers and patients. We are looking forward to welcoming Valence Health employees and clients to the Evolent team.
“The addition of the Valence Health business will provide increased scale and client diversification, and we expect it to accelerate our target timeline to adjusted [earnings before interest, taxes, depreciation and amortization] break-even in 2017 by 1 to 2 quarters,” Williams said. “We believe this transaction will strengthen our business strategically and financially and position it for continued growth well into the future.”
“Our two organizations are culturally and operationally aligned to deliver robust value-based administration and services to health care providers. Combining our team’s 20 years of clinical and strategic experience with Evolent’s proven innovations in value-based care will allow us to better serve our clients with best-in-class technology, clinical models and administrative service capabilities,” added Valence CEO Andrew Eckert.
J.P. Morgan Securities advised Valence on the deal, with Latham & Watkins as legal counsel. Bass, Berry & Sims was legal counsel to Evolent, the company said.