Evolent Health to Acquire NIA

Evolent Health, Inc. (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.”

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.
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.