Credit Suisse (SIX:CSGN) analysts issued a research report on HMS Holdings (NASDAQ:HMSY) after it and Veritas Capital-backed Gainwell Technologies (private; www.gainwelltechnologies.com) announced that they have signed a definitive agreement for Gainwell to acquire HMS for $37/share in cash on December 21, 2020.
The report noted that purchase price includes a 52% premium to HMS’ unchanged share price as of October 2, 2020, the last trading day before reports of a possible transaction were reported, and a 9.5% premium over closing share price on December 18, 2020.
The $3.4 billion enterprise value transaction is expected to close in the first half of next year. The transaction represents 16.1x 2021 and 14.8x 2022 the analysts estimated EBITDA. The report also highlighted how HMS had built cash on its balance sheet despite facing volatility in shares, which the analysts said supported the Company’s take-over agenda.
In August 2018, Verscend Technologies, another Veritas Capital-backed company, acquired Cotiviti, which offers payment accuracy and analytics-driven solutions and notably is also one of HMS’ competitors, especially in the payment accuracy business. The transaction then valued Cotiviti for an EV of $4.9 billion about 14.6x for the next calendar year’s EBITDA.
The acquisition announcement also noted the synergies in that Veritas will seek to optimize the HMS solution set across Gainwell and Cotiviti. Gainwell will receive the HMS faculty focused on the Medic-aid market, whereas Cotiviti will obtain the HMS faculty focused on the Medicare, commercial and federal markets, including Population Health Management (PHM).
It Will Be Good for HMS, Say Analysts
Weighing upon the above factors and the analysts’ LBO analysis in early October, the estimated purchase price stands at $36, with analysts forecasting the shares of the company trading at 15x of their 2022 EBITDA estimate, returning a price target of $38 in supporting the analysts’ Outperform rating.
Also, it is worth noting that the analysts estimated the buyer could realize an Internal Rate of Return (IRR) of about 15% at $37/purchase price on the basis of their updated LBO model and forecasting 8.0x leverage on the transaction as well as an exit multiple of 16x EBITDA in five years.
Founded in 1974, Texas-based HMS Holdings Corp. leverages healthcare data technology, analytics, and other related services to deliver solutions in healthcare focusing on its three key business segments: Payment Integrity (PI), Coordination of Benefits (COB), and Total Population Management (TPM).
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