Value-based healthcare: Evolent, Advisory Board mull merger

Evolent Health (NYSE:EVH) and the Advisory Board Co. (NSDQ:ABCO), which helped launch Evolent in 2011, are contemplating a merger, “people familiar with the matter” told Reuters.

Evolent, which makes software for hospitals moving from fee-for-service to an outcomes-based business model, was founded in 2011 by its top 2 investors, the University of Pittsburgh Medical Center Advisory Board Co., a healthcare research firm.

Private equity firms have consulted with Evolent about funding an offer, as Advisory Board entertains bids from other suitors reportedly including healthcare data company Press Ganey Assoc. (NYSE:PGND); possible outcomes include an outright sale or just the divestment of Advisory Board’s healthcare unit, the sources told Reuters March 24.

A outright sale could fetch as much as $56 per share for Advisory Board, according to Barclays analyst Eric Percher.

The news sent EVH shares up 4.8% to a $20.85 close March 24; the stock was down -1.9% to $YY per share in early trading today. ABCO stock closed flat last week at $44.70 apiece, the shares gained 2.7% this morning, rising to $45.90 (although that could also be fueled by a Robert Baird upgrade from “neutral” to “outperform;” the brokerage also boosted its price target for ABCO from $50 to $53 today).

The ties between the company are strong. Advisory Board owned a 6.1% stake in Evolent ahead of that company’s $196 million initial public offering in June 2015. That had climbed to a 13.7% share as of Dec. 31, 2016; Evolent chief Frank Williams is the former CEO of Advisory Board.

In January, Advisory Board said it would cut 220 jobs, or 5.7% of its workforce, after posting profits of $37.2 million for the 4th quarter, compared to losses of -$105.3 million during Q4 2015.

Material from Reuters was used in this report.

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