BOWIE, Md., March 07, 2018 (GLOBE NEWSWIRE) -- Inovalon (Nasdaq:INOV), announced it has entered into a definitive agreement to acquire ABILITY Network for aggregate consideration of $1.2 billion in cash and restricted stock, creating a vertically-integrated leader in cloud-based enablement of data-driven, value-based care. The transaction is expected to close in April 2018, subject to customary closing conditions and regulatory approvals and is expected to be accretive to Inovalon’s Non-GAAP diluted net income per share in 2018.
ABILITY is a cloud-based Software-as-a-service (SaaS) technology company helping to simplify the administrative and clinical complexities of healthcare. Through the myABILITY®software platform, an integrated set of cloud-based applications for providers, ABILITY provides core connectivity, administrative, clinical, and quality analysis, management, and performance improvement capabilities to more than 44,000 acute, post-acute and ambulatory point-of-care provider facilities.
The extensive datasets, on-demand compute capability, advanced analytics, and broad healthcare ecosystem connectivity enabled by the Inovalon ONE™ Platform will provide a significant expansion of application offerings within the myABILITY® software platform while also expanding the nature and reach of high-value solutions for Inovalon’s existing payer, pharma, and device client-base.
Upon closing, the combination of Inovalon and ABILITY creates a vertically integrated cloud-based platform empowering the achievement of real-time, value-based care from payers, manufacturers, and diagnostics all the way to the patient’s point of care.
Meaningful Benefits to Healthcare
Together, Inovalon and ABILITY will bring capabilities unparalleled in empowering a comprehensive vertical integration of value-based healthcare. The power of advanced, ultra-high-speed, on-demand data and analytics brought to the patient’s point-of-care within the work-flow where care is delivered will enable high-value and high-impact applications of data sought after by health plans, employers, pharmaceutical companies, medical device manufacturers, and diagnostic companies. Concurrently, acute, post-acute, and ambulatory care providers are eager to have access to deeper data, more advanced analytics, data-driven best-practices, clinical care protocols and decision support, and value-based tools to empower them to better succeed in a marketplace asserting growing cost pressures, outcomes expectations, and increasingly complex contract structures upon them. The capabilities achieved through the combination of Inovalon and ABILITY will empower a highly symbiotic ecosystem and a resulting value that is much greater than the sum of the parts.
Meaningful Benefits to Shareholders
The combination will both leverage and enhance the data assets of Inovalon, will expand efficiencies gained through connectivity, and will increase the overall reach of the Company’s data-driven intervention impact. From a sales perspective, the combination is expected to increase the addressability of the Company’s total addressable market (TAM), increase the combined Company’s differentiators, increase the number of clients from which cross selling can be achieved, and provide a significant high-volume, high-velocity distribution channel for additional applications and capability enhancements enabled by Inovalon’s Platform. Further, the transaction will diversify Inovalon’s customer size, customer segments, and customer concentration.
ABILITY’s high-value and differentiated offerings have been positively recognized in the marketplace, resulting in strong financial performance in 2017 with revenue growth of 10%, gross margins over 80%, Adjusted EBITDA margin of over 50%, bookings growth of 31%, a high recurring revenue of approximately 99%, and strong customer retention rates of approximately 92% (based on unaudited financial statements). These added strengths result in the combination contributing significant positive Adjusted EBITDA (adding at least an estimated $50 million in 2018 presuming an early April 2018 closing) and an increase in both the Company’s gross margins and Adjusted EBITDA margin (to more than an estimated 70% and 29% respectively in 2018 presuming an early April 2018 closing).
“This will be an industry-leading combination, resulting in the creation of a vertically-integrated leader in cloud-based enablement of data-driven, value-based care,” said Keith Dunleavy, M.D., chief executive officer and chairman of the board of Inovalon. “The addition of ABILITY’s innovative platform-based applications, extensive provider client base and connectivity, and efficient, high-volume distribution channel will enable Inovalon to deliver increasingly differentiated value to both ABILITY’s provider customers and Inovalon’s established client base, as well as drive significant growth and accretive financial performance for our shareholders in 2018 and going forward.”
“Inovalon and ABILITY share important commonalities – a common mission to enable data-driven improvements in healthcare, and a common technology vision focused on cloud-based platform architecture, real-world data, connectivity, and a recurring subscription-based model,” said Mark A. Pulido, chairman and chief executive officer of ABILITY. “ABILITY has established a trusted relationship with tens of thousands of provider facilities of all sizes across our nation. Combining our capabilities with the many strengths of the Inovalon ONE™ Platform will enable significant innovation throughout the healthcare vertical – from the largest of the payers and manufacturers – down to the individual patient’s point of care.”
Financial and Other Details
Inovalon has agreed to acquire ABILITY for $1.2 billion, comprised of $1.1 billion in cash and $100 million in restricted Inovalon stock (translating into 7.6 million shares, based on the 45-day trailing average stock price for INOV as of March 5, 2018 of $13.16), equating to an acquisition price of 16.6x ABILITY’s LTM December 31, 2017 Adjusted EBITDA of $72.1 million. Inovalon will finance the transaction through the aforementioned 7.6 million shares of restricted equity, cash on hand, and borrowings from a new $980 million term loan for which a commitment has been obtained, and which will also be used to pay off and replace the Company’s existing credit facility indebtedness. Morgan Stanley Senior Funding, Inc. is providing the financing commitment for the acquisition and will lead the financing. The Company will continue to have strong liquidity with approximately $75 million in cash, an untapped $100 million revolver, and a pro-forma net debt to Adjusted EBITDA ratio of approximately 4.1x at year-end 2018, dropping to approximately 3.3x at year-end 2019 in the setting of the Company’s strong cash flow. The transaction has been unanimously approved by the Inovalon and ABILITY boards of directors and is not subject to a financing contingency or approval by Inovalon’s stockholders.
Inovalon’s preliminary updated financial guidance for 2018 is presented in the table below, which assumes the acquisition of ABILITY closes in early April, 2018. This preliminary guidance is based on current expectations and will be updated upon closing of the transaction. Additional details are provided within the Company’s supplemental Transaction Presentation made available on the Company’s investor website.
1 The Company’s previously provided guidance of February 20, 2018 remains unchanged except for the addition of ABILITY Network’s impact presuming an acquisition closing in early April, 2018.
2 GAAP net (loss)/income includes estimated: one-time transaction costs of $4.0 million, non-recurring integration costs of $7.5 million, and deal-related intangible asset amortization of $21.0 million using an estimated intangible asset useful life of 15 years (totaling approximately $32.5 million).
3 The Company is assuming 146 million shares for the full year 2018, up from 140 million shares assumed in guidance previously. Additionally, the Company’s guidance assumes an effective tax rate of approximately 30% for the full year 2018.
Upon closing of the transaction, Jamison Rice, EVP, chief financial officer of ABILITY, will serve as general manager & divisional president of ABILITY and join Inovalon’s executive leadership team (ELT) reporting to Inovalon’s CEO, Keith Dunleavy, M.D. Mark Pulido, chairman & chief executive officer of ABILITY, is expected to join Inovalon’s board of directors and serve as an advisor on the integration of ABILITY with Inovalon. Senior management of ABILITY have entered into employment agreements with Inovalon which go into effect pending the closing of the transaction. The 7.6 million shares of restricted Inovalon equity will be held predominantly by Summit Partners and Bain Capital Ventures, as well as by ABILITY’s senior management, and will remain restricted from sale or transfer (50% for 12 months and the remaining 50% for 18 months).
About ABILITY® Network
ABILITY® Network is a leading information technology company helping providers and payers simplify the administrative and clinical complexities of healthcare through innovative applications and data analytics. ABILITY is headquartered in Minneapolis with principal offices in Boston and Tampa.
About Inovalon
Inovalon is a leading technology company providing cloud-based platforms empowering a data-driven transformation from volume-based to value-based models throughout the healthcare industry. Through the Inovalon ONE™ Platform, Inovalon brings to the marketplace a national-scale capability to interconnect with the healthcare ecosystem, aggregate and analyze data in petabyte volumes to arrive at sophisticated insights in real-time, drive impact wherever it is analytically identified best to intervene, and intuitively visualize data and information to inform business strategy and execution. Leveraging its platform, unparalleled proprietary data sets, and industry-leading subject matter expertise, Inovalon enables the assessment and improvement of clinical and quality outcomes and financial performance across the healthcare ecosystem. From health plans and provider organizations, to pharmaceutical, medical device, and diagnostics companies, Inovalon's unique achievement of value is delivered through the effective progression of “Turning Data into Insight, and Insight into Action®.” Providing technology that supports a client base approaching 500 healthcare organizations, Inovalon's platforms are informed by data pertaining to more than 932,000 physicians, 455,000 clinical facilities, and 240 million Americans. For more information, visit www.inovalon.com.
