- Accelerates Evolent Health's Value-Based Specialty Care Market
Leadership
- Transaction Anticipated to be Immediately Accretive to Adjusted
EBITDA Margins and Cash Flow
- Highly Complementary Business Expected to Add $85 Million of High-Visibility Adjusted EBITDA by
2024; Maintains Strong Balance Sheet
- Diversifies Evolent's Revenue Base and Increases Cross-Sell
Opportunity from $16 Billion to
$50 Billion
- Expands Centene Customer Relationship with New NIA Contract
Expansions and is Expected to Accelerate Pace of Remaining Evolent
Cross-Sell Opportunity with Centene
WASHINGTON ,
Nov. 17,
2022 /PRNewswire/ -- Evolent Health, Inc.
("Evolent" or "the Company") (NYSE: EVH) today announced that it
has entered into a definitive agreement to acquire NIA (also known
as Magellan Specialty Health), the specialty benefit management
organization owned by Centene Corporation (NYSE: CNC) that focuses
on managing cost and quality in the areas of radiology,
musculoskeletal, physical medicine, and genetics.
NIA has revenues of approximately $250
million and stand-alone Adjusted EBITDA of approximately
$50 million. Contracted service
expansions from Centene combined with identified cost synergies are
expected to increase run-rate Adjusted EBITDA to $85 million and be fully realized by the fourth
quarter of 2024. Consideration for the acquisition includes
$650 million at close plus additional
contingent consideration of up to $150
million based on 2023 performance. The upfront consideration
will be funded in part by $250
million in Evolent equity issued to the sellers at a price
of $29.50, a 24% premium to the prior
day's closing price, subject to lock-up provisions. Upon close, the
NIA team and platform will be fully integrated into Evolent's
value-based specialty care business, which includes New Century
Health, Vital Decisions and IPG.
In addition to the NIA acquisition, Evolent and Centene are
expanding Centene's relationship with NIA and extending NIA's
contracts with Centene through 2027. We believe these expansions
will generate at least $20 million of
Adjusted EBITDA by the fourth quarter of 2024.
Seth Blackley, Chief Executive
Officer of Evolent, stated, "Today's announcement represents
another step forward in Evolent's journey to become a national
leader in value-based specialty care, and we believe it will also
improve our financial profile, customer diversification and scale.
I am also excited to significantly expand our strategic partnership
with Centene, and I look forward to the opportunity to further grow
our relationship in the time ahead."
Mr. Blackley continued, "These transactions should elevate our
visibility with payers and create a more comprehensive specialty
solution that should position us as the go-to value-based specialty
partner for any health plan in the country. After the closing of
the transaction, we believe we will have a $50 billion cross-sell opportunity inside our
existing customer footprint, up from $16
billion today. Finally, this acquisition brings
complementary assets to a core Evolent business that is performing
well, including strong revenue and margin growth heading into 2023.
We believe this announcement aligns with our core operating
priorities of revenue growth, margin expansion and disciplined
capital allocation, all for the benefit of our shareholders."
John Johnson, Chief Financial
Officer of Evolent, stated, "We believe the NIA acquisition is
financially attractive and is expected to immediately enhance our
Adjusted EBITDA margin and cash flow profile. Further, with highly
visible free cash flow generation in 2023 and beyond, the
transaction maintains our strong balance sheet from day one, while
enabling us to quickly de-lever in the next 18 months."
Dan McCarthy, President of
Evolent, added, "With the successful integration of past specialty
acquisitions and the accelerating growth in our existing business,
we believe we can integrate the NIA asset into our platform and add
new revenue and Adjusted EBITDA with the benefit of the NIA
solutions, team and customer base. Our experience in the
value-based specialty market informs us that many current and
prospective payer partners are looking for more breadth and
integration across specialties, and I believe this acquisition sets
us up to meet that need."
Sarah London, Chief Executive
Officer of Centene, commented, "Magellan Specialty Health has been
a trusted partner of Centene and its health plans for more than a
decade. By combining Magellan Specialty Health with Evolent, which
is also a trusted strategic partner, Centene will have access to a
broad and integrated portfolio of value-based specialty solutions
across more of Centene's geographies and lines of business."
STRATEGIC RATIONALE
Accelerates Market Leadership in
Value-Based Specialty Care
- Builds on the proven Evolent Health Clinical Solutions growth
engine as a leading independent provider of value-based specialty
care, improving quality and lowering health care costs.
- Adds highly complementary capabilities in radiology,
musculoskeletal, physical medicine and genetic testing that should
unlock revenue synergy opportunities.
Financially Attractive and
Immediately Accretive Transaction
- Expect the transaction to be immediately accretive to Adjusted
EBITDA margins and cash flow.
- Expect $85 million of run-rate
Adjusted EBITDA by the end of 2024, based on 2023 estimated current
base of $50 million, plus
$15 million in identified cost
synergies, plus $20 million from full
rollout of contracted NIA expansion with Centene.
- Attractive upfront valuation of 13.0-times NIA's current
Adjusted EBITDA.
- Attractive total valuation, including payment of the full earn
out, of 9.4-times the run-rate Adjusted EBITDA.
Centene Customer Relationship
Expansion and Future Acceleration
- New extensions to existing NIA contracts signed in connection
with the transaction driving $20
million of expected incremental 2024 Adjusted EBITDA.
- Broad opportunities to further expand the Centene
partnership.
TRANSACTION DETAILS AND
OUTLOOK
Acquisition of NIA
- Evolent will acquire NIA from Centene for $650 million of upfront consideration, comprising
$400 million in cash and $250 million of newly issued Evolent equity based
on an issuance price of $29.50,
representing a 24% premium to the close price on 11/16/2022. Up to
$150 million of contingent
consideration is payable in Q1 2024 based on NIA performance during
2023, delivered in cash and up to 50% Evolent equity at Evolent's
discretion.
- NIA standalone financials for 2023 are expected to be:
-
- Revenue of $250 million
- Adjusted EBITDA of $50
million
- Adjusted EBITDA margin of 20%
- Annual adjusted net revenue growth for NIA is expected to meet
or exceed Evolent's long-term growth target.
- The Company expects to fund $400
million of the purchase price in cash through a combination
of cash on the balance sheet and a fully committed financing
package from funds managed by Ares Management.
- At closing, the Company is targeting a senior net leverage
ratio of 2.5-times and a total net leverage ratio of approximately
3.7-times the pro forma trailing 12 months Adjusted EBITDA. The
Company plans to prioritize debt paydown in future capital
allocation, targeting a senior net leverage ratio of under
1.2-times and total net leverage ratio of under 2.0-times in
2024.
2023 Business Outlook
Update
In tandem with the announcement of the planned acquisition of
NIA as well as the anticipated growth in Evolent's partnership with
Centene, the Company is providing an initial view on its growth
prospects for 2023.
- Evolent anticipates 2023 reported revenue growth to exceed 25%
before any impact from NIA, equating to organic growth of 20%+ and
the contribution of seven months of incremental revenue from the
IPG acquisition, completed in August.
- Evolent anticipates continued expansion in Adjusted EBITDA
margin in 2023 vs. YTD 2022 result, before accretive impact from
NIA.
- The company expects 2023 cash generation (excluding funded
earnouts and typical transaction expenses) to exceed $120 million before interest expense, providing
strong coverage on near-term debt service.
Goldman Sachs is serving as financial advisor to Evolent, and
Bass Berry & Sims PLC and King & Spalding LLP are serving
as its legal counsel. PJT Partners is also serving as an advisor to
Evolent. J.P. Morgan Securities LLC is serving as financial advisor
to Centene, and Skadden, Arps, Slate, Meagher & Flom LLP is
serving as its legal counsel.
The transaction is subject to U.S. federal antitrust clearance
and satisfaction of other customary closing conditions and is
expected to close in the first half of 2023.
Teleconference and
Webcast
Management will host a conference call to discuss the
acquisition on Thursday, November 17, 2022 at 5:00
p.m. Eastern Time.
A live link to the webcast of the call as well a presentation to
accompany the call are available at the following location:
http://ir.evolenthealth.com/event-calendar/default.aspx
Shareholders and interested participants may also listen to a
live broadcast of a conference call hosted by management. To
participate, please
dial 855-940-9467 or 412-317-6034 for
international callers and referencing the "Evolent Health call" 15
minutes prior to the call (Confirmation number 10173552). An audio
playback of the conference call will be available on Evolent's
investor relations website, ir.evolenthealth.com, for 90 days after
the call.
About Evolent
Health
Evolent Health (NYSE: EVH) delivers proven clinical and
administrative solutions that improve whole-person health while
making health care simpler and more affordable. Our solutions
encompass total cost of care management, specialty care management,
and administrative simplification. Evolent serves a national base
of leading payers and providers, is the first company to receive
the National Committee for Quality Assurance's Population Health
Program Accreditation and is consistently recognized as a top place
to work in health care nationally. Learn more about how Evolent is
changing the way health care is delivered by visiting
evolenthealth.com
About Centene
Centene Corporation, a Fortune 500 company, is a leading health
care enterprise that is committed to helping people live healthier
lives. Centene takes a local approach—with local brands and local
teams—to provide fully integrated, high-quality, and cost-effective
services to government-sponsored and commercial health care
programs, focusing on under-insured and uninsured individuals.
Centene offers affordable and high-quality products to nearly 1 in
15 individuals across the nation, including Medicaid and Medicare
members (including Medicare Prescription Drug Plans) as well as
individuals and families served by the Health Insurance
Marketplace, the TRICARE program and individuals in correctional
facilities. Centene also serves several international markets, and
contracts with other health care and commercial organizations to
provide a variety of specialty services focused on treating the
whole person. Centene focuses on long-term growth and value
creation as well as the development of its people, systems and
capabilities so that it can better serve its members, providers,
local communities and government partners.
Centene uses its investor relations website to publish important
information about Centene, including information that may be deemed
material to investors. Financial and other information about
Centene is routinely posted and is accessible on Centene's investor
relations website, https://investors.centene.com/.
FORWARD-LOOKING
STATEMENTS
Certain statements made in this press release and in other
written or oral statements made by us or on our behalf are
"forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995 ("PSLRA"). A
forward-looking statement is a statement that is not a historical
fact and, without limitation, includes any statement that may
predict, forecast, indicate or imply future results, performance or
achievements, and may contain words like: "believe," "anticipate,"
"expect," "estimate," "aim," "predict," "potential," "continue,"
"plan," "project," "will," "should," "shall," "may," "might" and
other words or phrases with similar meaning in connection with a
discussion of future operating or financial performance. In
particular, these include statements relating to our guidance and
business outlook and future performance, leverage or financial
results, including of NIA, and our strategy. We claim the
protection afforded by the safe harbor for forward-looking
statements provided by the PSLRA.
These statements, including but not limited to estimates of
Adjusted EBITDA, earnings growth, expected cost synergies and net
leverage ratios, are only predictions based on our current
expectations and projections about future events. Forward-looking
statements involve risks and uncertainties that may cause actual
results, level of activity, performance or achievements to differ
materially from the results contained in the forward-looking
statements. Risks and uncertainties that may cause actual results
to vary materially, some of which are described within the
forward-looking statements, include, among others: risks and
uncertainties related to the possibility that the closing of the
NIA transaction may be delayed or may not occur, and the risk that
litigation or other matters could affect the closing, the
significant portion of revenue we derive from our largest partners,
and the potential loss, non-renewal, termination or renegotiation
of our relationship or contract with any significant partner, or
multiple partners in the aggregate; evolution in the market for
value-based care; uncertainty in the health care regulatory
framework, including the potential impact of policy changes; our
ability to offer new and innovative products and services; risks
related to completed and future acquisitions, investments,
alliances and joint ventures, divert management resources, or
result in unanticipated costs or dilute our stockholders; the
financial benefits we expect to receive as a result of the sale of
certain assets of Passport may not be realized; the growth and
success of our partners, which is difficult to predict and is
subject to factors outside of our control, including governmental
funding reductions and other policy changes, enrollment numbers for
our partners' plans, premium pricing reductions, selection bias in
at-risk membership and the ability to control and, if necessary,
reduce health care costs; risks relating to our ability to maintain
profitability for our total cost of care and New Century Health's
performance-based contracts and products, including capitation and
risk-bearing contracts; our ability to effectively manage our
growth and maintain an efficient cost structure, and to
successfully implement cost cutting measures; changes in general
economic conditions nationally and regionally in our markets,
including inflation and economic and business conditions and the
impact thereof on the economy resulting from the COVID-19 pandemic
and other public health emergencies our ability to recover the
significant upfront costs in our partner relationships; our ability
to attract new partners and successfully capture new growth
opportunities; the increasing number of risk-sharing arrangements
we enter into with our partners; our ability to estimate the size
of our target markets; our ability to maintain and enhance our
reputation and brand recognition; consolidation in the health care
industry; competition which could limit our ability to maintain or
expand market share within our industry; risks related to
governmental payer audits and actions, including whistleblower
claims; our ability to partner with providers due to exclusivity
provisions in our contracts; risks related to our offshore
operations; our ability to contain health care costs, implement
increases in premium rates on a timely basis, maintain adequate
reserves for policy benefits or maintain cost effective provider
agreements; our dependency on our key personnel, and our ability to
attract, hire, integrate and retain key personnel; the impact of
additional goodwill and intangible asset impairments on our results
of operations; our indebtedness, our ability to service our
indebtedness, and our ability to obtain additional financing; our
ability to achieve profitability in the future; the impact of
litigation, including the ongoing class action lawsuit; material
weaknesses in the future may impact our ability to conclude that
our internal control over financial reporting is not effective and
we may be unable to produce timely and accurate financial
statements; restrictions and penalties as a result of privacy and
data protection laws; data loss or corruption due to failures or
errors in our systems and service disruptions at our data centers;
restrictions and penalties as a result of privacy and data
protection laws; adequate protection of our intellectual property,
including trademarks; any alleged infringement, misappropriation or
violation of third-party proprietary rights; our use of "open
source" software; our ability to protect the confidentiality of our
trade secrets, know-how and other proprietary information; our
reliance on third parties and licensed technologies; our ability to
use, disclose, de-identify or license data and to integrate
third-party technologies; our reliance on Internet infrastructure,
bandwidth providers, data center providers, other third parties and
our own systems for providing services to our partners; our
reliance on third-party vendors to host and maintain our technology
platform; our obligations to make payments to certain of our
pre-IPO investors for certain tax benefits we may claim in the
future; our ability to utilize benefits under the tax receivables
agreement described herein; our obligations to make payments under
the tax receivables agreement that may be accelerated or may exceed
the tax benefits we realize; the terms of agreements between us and
certain of our pre-IPO investors; the conditional conversion
features of the 2024 and 2025 convertible notes, which, if
triggered, could require us to settle the 2024 or 2025 convertible
notes in cash; the potential volatility of our Class A common stock
price; the potential decline of our Class A common stock price if a
substantial number of shares are sold or become available for sale;
provisions in our second amended and restated certificate of
incorporation and third amended and restated by-laws and provisions
of Delaware law that discourage or
prevent strategic transactions, including a takeover of us; the
ability of certain of our investors to compete with us without
restrictions; provisions in our second amended and restated
certificate of incorporation which could limit our stockholders'
ability to obtain a favorable judicial forum for disputes with us
or our directors, officers or employees; and our intention not to
pay cash dividends on our Class A common stock.
The risks included here are not exhaustive. Although we believe
the expectations reflected in the forward-looking statements are
reasonable, we cannot guarantee future results, level of activity,
performance or achievements. Our Annual Report on Form 10-K for the
year ended December 31, 2021 (the
"2021 Form 10-K") and other documents filed with the SEC include
additional factors that could affect our businesses and financial
performance. Moreover, we operate in a rapidly changing and
competitive environment. New risk factors emerge from time to time,
and it is not possible for management to predict all such risk
factors. Further, it is not possible to assess the effect of all
risk factors on our businesses or the extent to which any factor,
or combination of factors, may cause actual results to differ
materially from those contained in any forward-looking statements.
Given these risks and uncertainties, investors should not place
undue reliance on forward-looking statements as a prediction of
actual results. In addition, we disclaim any obligation to update
any forward-looking statements to reflect events or circumstances
that occur after the date of this press release.
This press release is for informational purposes only and does
not constitute an offer to sell or a solicitation of an offer to
purchase any securities of any nature whatsoever, and it may not be
relied upon in connection with the purchase of securities. The
contents of this press release do not constitute legal, tax or
business advice. Anyone reading this press release should seek
advice based on their particular circumstances from independent
legal, tax and business advisors.
Additional Information and Where to Find It:
Financial
Details and Webcast
http://ir.evolenthealth.com/overview/
Information About Evolent Health
https://www.evolenthealth.com/
Contacts:
Evolent Health, Media Contact:
Media Relations
media@evolenthealth.com
Evolent Health, Investor Relations
Contact:
Seth R. Frank
sfrank@evolenthealth.com
571-895-3919
NIA Media Contact:
Suzy DePrizio
mediainquiries@centene.com
(314) 445-0790
View original content to download
multimedia:https://www.prnewswire.com/news-releases/evolent-health-announces-acquisition-of-specialty-asset-nia-and-strategic-partnership-with-centene-301682153.html
SOURCE Evolent Health