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Evolent Health (EVH) Completes Acquisition of Valence Health


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Evolent Health Inc. (EVH - Snapshot Report) announced that it has completed the acquisition of Valence Health. The deal was announced in Jul 2016. Per the agreement, the company paid $219.4 million for the acquisition. The price is based on the closing price of Evolent's Class A common stock as on Oct 3, 2016, and consists of 7.05 million shares of Evolent Class A common stock and $50.3 million in cash.

As a standalone business, Valence is estimated to generate revenues of $80–$85 million (nearly 90% recurring) in calendar year 2016. Approximately 25% of revenues should come from population health and advisory services, while Medicaid and pediatric services are likely to generate the rest.

Valence has a strong clientele that includes the likes of The University of Chicago, Cincinnati Children’s, NorthShore among others. Notably, the deal adds a significant scale to Evolent’s business, as the combined entity serves 23 long-term operating partners and more than 1.8 million lives in 30 plus states.

Per Evolent, the acquisition will accelerate its break-even EBITDA target in 2017 by one or two quarters. Apart from financial benefits, the acquisition strengthens Evolent’s inherent capabilities and expands its growth prospect. Management noted that Valence’s expertise in Medicaid and pediatric value-based care administration will fill up important gaps in Evolent’s business model.

Evolent also noted that as many as 90 contracts that can bring long-term opportunities are in strategic or initial phases. Per management, the deal will help Evolent to address the needs of the fast growing value-based care market, which is projected to grow more than $45 billion by 2020.

Zacks Rank & Key Picks

Better-ranked stocks in the broader medical sector are GW Pharmaceuticals Plc. (GWPH - Analyst Report) , Lantheus Holdings Inc. (LNTH - Snapshot Report) and Quidel Corp. (QDEL - Snapshot Report) . Notably, all three stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

GW Pharmaceuticals has a solid year-to-date return of 91%, way better than the S&P 500’s 5.7% over the same time frame. Notably, the company posted a positive earnings surprise in the last four quarters, the average being 41.6%.

Lantheus Holdings posted a stupendous year-to-date return of 143.4%. Notably, the company expects earnings growth rate of 12.5% over the next 3 to 5 years.

Quidel Corp. has a positive year-to-date return of 2.9%. The stock has a healthy expected earnings growth rate of 20%.

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