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Evolent Health (EVH) Acquires IPG for $375M + Up to $87M

June 29, 2022 5:45 AM EDT

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Evolent Health, Inc. (NYSE: EVH) today announced that it has entered into a definitive agreement to acquire IPG, a leading technology and services company providing surgical management solutions for musculoskeletal conditions, from TPG Growth, the middle market and growth equity platform of alternative asset firm TPG, for $375 million plus additional contingent consideration of up to $87 million. Upon close the IPG team and platform will be integrated into New Century Health.

Seth Blackley, Chief Executive Officer and Co-Founder of Evolent Health stated, "Today's announcement represents an important step in Evolent's journey to become a national leader in value-based specialty care solutions. The acquisition of IPG will expand Evolent's specialty portfolio, add new customers, and increase our commercial insurance revenue mix. IPG is a leader in surgical cost management solutions with a focus on musculoskeletal cost and quality and adds unique clinical value and an enhanced financial profile to support our mission for our patients, providers, payers and shareholders."

John Johnson, Chief Financial Officer of Evolent Health stated, "At closing, the IPG acquisition is expected to immediately enhance our Adjusted EBITDA margin and cash flow profile and is consistent with our objective of efficiently allocating capital to drive long-term value creation. IPG will add valuable relationships with national and regional commercial health plans across the country, as well as hundreds of partnerships with ambulatory surgery centers nationally."

Vince Coppola, Chief Executive Officer of IPG said, "On behalf of IPG, we are excited to become part of a leading value-based specialty care solutions company. We look forward to working closely with the Evolent team to further accelerate our growth and innovation. This partnership creates significant opportunities for our business, our clients and our team."

STRATEGIC RATIONALE

Expanding Specialty Focus:

  • Accelerates Evolent's core strategy to be a leading provider of value-based specialty care solutions.
  • Expands Evolent's specialty focus to include surgical cost management focusing on musculoskeletal conditions, adding to our specialty portfolio today of oncology, cardiology, and end-of-life care planning.
  • Enables Evolent to more fully meet the value-based specialty needs of health plan and risk-bearing provider clients through an integrated and "turnkey" partner service approach

Anticipate an Enhanced Financial Profile for Evolent Health:

  • Expect the transaction to be immediately accretive to Adjusted EBITDA margins and cash flow.
  • Expect meaningful revenue cross-sell synergy opportunity with health plan and risk-bearing provider customers.
  • Improves customer and revenue diversification, adds additional specialty end-markets and enhanced balance across both the Company's book of risk and non-risk contracts and health plan revenue by line of business (i.e., Medicare, Medicaid and Commercial).
TRANSACTION DETAILS AND OUTLOOK

Acquisition of IPG

  • Evolent will acquire IPG from TPG Growth for $375 million in cash, due at close. In addition, contingent consideration of up to $87 million may be paid based on future performance milestones for IPG.
  • For Calendar Year 2022, IPG standalone financials are expected to be:
    • Revenue of $140 million.
    • Adjusted EBITDA of $25 million (approximately 18% margin).
    • Capital expenditures of $2 million.
  • Annual sales growth for IPG is expected to be 20%+.
  • The upfront valuation multiple for IPG equates to approximately 15-times IPG's expected 2022 Adjusted EBITDA. Full achievement of the performance milestones would translate to an expected Adjusted EBITDA multiple of approximately 11-times the incremental consideration.
  • This transaction is expected to close during the third quarter of 2022 and is subject to customary closing conditions.
  • The Company expects to fund $250 million of the purchase price in cash, through a combination of $25 million cash on hand and proceeds from a new $225 million Five Year Senior Credit Facility provided by funds managed by the credit group of Ares Management.
  • The balance of the upfront consideration will be in the form of newly issued Evolent common shares.

2022 Financial Outlook

  • The Company reaffirmed its outlook for the second quarter of 2022 and full year 2022 before the acquisition of IPG, as originally issued on May 4, 2022.
  • At closing, pro forma for the transaction, the Company is targeting trailing twelve-month net debt (excluding in-the-money convertible notes) to Adjusted EBITDA ratio of approximately 2.9-times and the Company anticipates targeting net leverage of under 2.5-times within twelve months following the close of the transaction.
  • The Company expects to provide updated full year guidance incorporating the acquisition on its second quarter, 2022 earnings report and conference call in early August, assuming the acquisition has closed by such time.
Teleconference and Webcast

Management will host a conference call to discuss the acquisition on Wednesday, June 29, 2022 at 8:00 am 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. 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.



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