As some of you might have noticed, I tend toward the cynical and skeptical on the best of days. So when I look at corporate mergers and buyouts, which historically haven't done much more than transfer wealth from one group of shareholders to another, that jaundiced eye is on full display. Such is the case with Healthways'
Healthways, a provider of disease- and health-care-management programs, has announced that it's buying the company for $308 million in cash. That works out to about $500 per life under management -- as compared with Healthways' enterprise value of nearly $850 per life. That in itself is interesting to me -- it's not uncommon for private companies to carry discounted valuations to their public peers, but that sort of discrepancy is far more than the normal private-company discount could explain.
So what does Healthways get out of all of this?
First of all, it obviously gets scale. An additional 600,000 or so lives under management gives the company about 30% more clients to care for -- and that can mean both a little more operating leverage and a better bargaining position with potential new customers. There could also be some possibilities for product-line extensions; for example, while many of the companies' programs overlap, I don't recall Healthways having a musculoskeletal pain program, as LifeMasters does.
This deal also gives Healthways an entry into the Medicaid market, because LifeMasters already has an existing Medicaid business and is conducting a joint Medicare-Medicaid demonstration project in Florida -- not unlike Healthways' own Medicare pilot projects. Given the dynamics of Medicaid clients, who often don't seek attention until a medical problem is serious, there could be a lot of potential here in programs that are designed to encourage people to better manage their conditions to help avoid serious (and expensive) treatments.
Healthways hasn't been cheap for a long time, and it's actually managed to hit new highs, despite the rocky going of late in the markets. So while I'm not necessarily making a pitch for selling into strength, I'm not sure I really see much in the way of unappreciated value in the stock.
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Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).
