Why Evolent Health Stock Crept Higher Today

What happened

In contrast to the slight dip of the S&P 500 index on Wednesday, Evolent Health (NYSE: EVH) stock edged higher. That reflected the cautiously optimistic reaction of investors to the specialty healthcare company's news of a fresh acquisition.

So what

Wednesday morning, Evolent Health announced it has entered into a definitive agreement to purchase IPG for a base price of $375 million from its owner TPG Growth, a unit of alternative asset company TPG. IPG will also be eligible for up to $87 million more if it meets certain performance milestones.

Evolent Health said it expects to fund $250 million of the upfront price in cash, with the remainder to be paid in newly issued stock. Of that $250 million, $25 million is to come from cash on hand and the rest from a credit facility with a five-year term.

IPG is quite an interesting niche healthcare company. It partners with entities such as health insurance providers and device makers to help clients save money on the costs of surgical procedures. That's potentially a very good fit with Evolent Health's core healthcare administrative services business.

The acquirer said that IPG's financials for calendar 2022 are expected to be $140 million in revenue, fueled by more than 20% year-over-year growth in sales, and a non-GAAP (adjusted) earnings before interest, taxes, depreciation, and amortization (EBITDA) figure of $25 million. A forecast for net profit was not provided.

Now what

In the press release trumpeting the deal, Evolent Health CEO Seth Blackley said that it "will expand Evolent's specialty portfolio, add new customers, and increase our commercial insurance revenue mix."

The owner-to-be anticipates that IPG will be immediately accretive to its adjusted EBITDA margins, in addition to its cash flow. Evolent Health believes the deal will close in the third quarter of this year.

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Eric Volkman 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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