Management services organization Evolent Health moving down the road in selling itself. Another deal perking below the Labor Day wire to brew into September or October coffee is a full or partial buyout of Evolent Health. Potential buyers or partners include Elevance Health (the former Anthem), to position against Optum/UHG, and several private equity companies: TPG, KKR, and Clayton, Dubilier & Rice (CD&R). Evolent provides organizational and administrative services for primary plus specialty care physicians and payers for patients with complex conditions, within and outside of value-based care models such as ACOs, utilizing connected care and workflow automation technologies. In June, it agreed to acquire many of the AI utilization management assets of Machinify, not yet closed.
Evolent’s (EVH, NYSE) current market capitalization is about $3.65 billion; stock price closing yesterday was $31.62 (Yahoo Finance). Industry analyst Jailendra Singh of Truist projected earlier this month, before this news dropped, that the stock was underpriced at the time in the ~$20 range and justified a target price at $33, citing their ability to manage utilization trends and rate adjustments for FY 2024. Seeking Alpha went so far as to state that at an acquisition price of $35, it would still generate a profitable internal rate of return (IRR).
A buyout won’t be cheap. With an estimated $114-116 billion shares outstanding, an outright purchase price at $35/share could approach or top $4 billion. Which means that the buyout lift could be shared. Projections with the information available range from PEs negotiating a leveraged buyout (LBO), a tuck-in by Elevance, or possibly a PE/Elevance partnership. Elevance already works with CD&R in the Mosaic Health care delivery platform partnership. The shape of the buyout will develop over the next few weeks. FierceHealthcare
Another activist shareholder forcing a sale? Medical Buyer added to the above reports that long-time shareholder Engaged Capital pushed for this, to the degree that the board of directors needed to settle with them by forming a strategy committee focused on “value creation initiatives”. As far back as 2021, Evolent was courting suitors or partners–at that time, Walgreens Boots Alliance, which may have been a far better but more complex buy than VillageMD. Hat tip to HIStalk 8/26
Evolent’s potential sale complicates the outlook for other MSOs such as Aledade, Optum, Privia Health, Health Catalyst, Accolade, Alignment Health, and Collaborative Health Systems (now part of Centene–disclaimer, CHS was this Editor’s former employer). In addition, a payer buying a large MSO with provider contractual relationships may pique the interest of FTC and DOJ, which already have Optum on their radar.
Sidebar: Revealed yesterday was Evolent’s CEO Blackley Seth cleaning up his stock option portfolio. According to Investing.com, he “sold shares totaling approximately $5.6 million at an average price of $30.00, with transactions ranging from $30.00 to $30.02. Additionally, the CEO acquired shares worth roughly $1.6 million through option exercises with prices between $6.87 and $10.27.” The sales were prearranged on 29 February under SEC Rule 10b5-1 to avoid insider trading charges. Both the sale and buy were over 100,000 shares.
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