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Motley Fool Issues Rare “All In” Buy Alert
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Shares of Evolent Health (EVH 14.67%) were soaring 14% higher as of 10:47 a.m. ET on Friday. The big gain came after the company announced the day before that it plans to acquire NIA (also known as Magellan Specialty Health) from Centene (CNC 2.16%). NIA helps healthcare organizations manage costs and improve quality in several specialty areas.
In addition, Evolent provided an update on its 2023 growth prospects. The company expects to deliver revenue growth of more than 25% next year before any impact from the NIA acquisition is included. More than 20% of this anticipated growth will be organic, with the remaining portion stemming from the recent acquisition of IPG, a provider of surgical management solutions for musculoskeletal conditions.
Evolent’s revenue growth in 2023 will be much higher as a result of its deal with Centene. NIA’s annual revenue is close to $250 million. It also generates adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) of around $50 million.
NIA’s EBITDA will likely increase. As part of the transaction, Centene agreed to expand its contracts with NIA. This is expected to boost NIA’s 2024 adjusted EBITDA by $20 million.
Investors obviously think the benefits of this acquisition justify the price tag. Evolent will pay Centene $650 million, plus potentially up to another $150 million if performance milestones are achieved. To fund the deal, Evolent plans to use $400 million in cash and issue new shares.
There are still a few hoops for Evolent and Centene to jump. Most importantly, U.S. antitrust regulators must give a thumbs-up first. Assuming there aren’t any roadblocks, though, the transaction should close in the first half of 2023.
Keith Speights has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
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