HealthEquity, Inc. (NASDAQ:HQY) , which is known for being largest independent health savings account (HSA) non-bank custodian in the United States, has recently announced its decision to acquire WageWorks, Inc. in an all-cash deal of approximately $2 billion. The acquisition is expected to aid HealthEquity to expedite the market-wide transition to HSAs.
For investors’ notice, WageWorks (NYSE:WAGE) is known for being a leader in administering HSAs and complementary consumer-directed benefits (CDBs).
Following the announcement, shares of HealthEquity rose nearly 5% to $65.27 at close on Jun 27.
Financial Terms
Per the terms of the deal, HealthEquity will acquire all of the issued and outstanding shares of common stock of WageWorks for $51.35 per share in cash, which reflects the total enterprise value of about $2 billion.
In order to finance the buyout, HealthEquity received a debt commitment from Wells Fargo (NYSE:WFC) Bank. The acquirer anticipates deleveraging quickly through solid, predictable future cash flow and growth.
Financial Impact of the Acquisition
With this buyout, HealthEquity might realize substantial synergy opportunities and projects around $50 million in annualized, on-going synergies that will be realized within 24 to 36 months of deal completion. This will be realized mainly through custodial and interchange revenue and operating efficiencies.
Further, HealthEquity expects to generate substantial incremental revenue synergies over time as the combined client base takes advantage of the complete offering.
How is HealthEquity Poised to Benefit?
The buyout is set to provide access to more of the thriving HSA market through expansion of its direct distribution to employers and benefits advisors as a single source, premium provider of HSAs and complementary CDBs.
The deal will help in developing a large provider of health savings accounts and additional CDBs that will include flexible spending, health reimbursement plans and commuter accounts.
Interestingly, the transaction will help in building an end-to-end proprietary platform, which will persuade members to spend prudently while saving for healthcare in retirement.
Bright Prospects in HSA Market
According to a recent report by benefitspro, based on the projections of Devenir — healthcare account investment expert — the HSA market is anticipated to grow in value from just below $54 billion in 2018 to nearly $75 billion in 2020.
Zacks Rank and Share Price Performance
Currently, HealthEquity carries a Zacks Rank #2 (Buy). Shares of the company have gained 9.4% year to date, outperforming the industry’s rally of 6.6%. However, the stock fell short of the S&P 500 index’s growth of 14.9%.
Other Key Picks
Investors interested in other top-ranked stocks from the broader medical space are Cardiovascular Systems, Inc. (NASDAQ:CSII) and Haemonetics Corporation (NYSE:HAE) , each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Cardiovascular Systems has earnings growth rate for fiscal fourth quarter of 2019 of 33.3%.
Haemonetics has a long-term earnings growth rate 13.5%.
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WageWorks, Inc. (WAGE): Free Stock Analysis Report
Haemonetics Corporation (HAE): Free Stock Analysis Report
Cardiovascular Systems, Inc. (CSII): Free Stock Analysis Report
HealthEquity, Inc. (HQY): Free Stock Analysis Report
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