Evolent Health, which helps healthcare systems make the transition to value-based care, will acquire the majority of Valence Health's business for about $145 million, the company announced Wednesday.
Evolent, founded in 2011, bases its business model on guiding systems in successfully managing performance-based payment arrangements; Valence, based in Chicago, was founded in 1996 and provides value-based administration, population health and advisory services.
Under the terms of the agreement, Evolent will acquire the majority of Valence Health's business, excluding its contracts serving state insurance cooperatives. The state insurance cooperative contracts will be transferred to a separate entity that will maintain operations as they currently exist today, which will be owned by Valence shareholders.
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The strategic rationale for the purchase, according to Evolent, is that together, the organizations expect to be able to offer comprehensive services and technology across a variety of populations serving more than 1.8 million people.
The $145 million purchase price is based on the closing price of Evolent's Class A common stock on the New York Stock Exchange on July 12, and consists of 5.84 million shares of Evolent Class A common stock and $35 million in cash. The transaction also includes an earn-out of up to $50 million, payable in Evolent Class A common stock, tied to future new business activity. Shares to be issued in relation to the earn-out are limited to 3.9 million shares, with full payment to be made by December 31.
Evolent expects the acquired business, on a standalone basis, to generate revenues of about $80-85 million for the year ending December 31. But Evolent will consolidate the results of the acquired business only for the period subsequent to the close of the transaction.
The companies expect the transaction to close within the next 120 days, subject to regulatory approvals and certain closing conditions set forth in the agreement.
The acquisition has been unanimously approved by the boards of directors of both companies. Evolent CEO Frank Williams will remain CEO of the combined organization, and there will be no change in composition of the Evolent Board of Directors.
"Practically, we expect the addition of Valence Health's talented team and their experience in value-based administration will advance our ability to drive results for a broader set of clients, providers and patients," said Williams in a statement.
Last autumn, Goldman Sachs analysts rated Evolent as an attractive takeover target due to how well its platforms align with the ongoing shift towards population health and value-based payment.