Inovalon Holdings Inc. (INOV, Economic) is a leading company of details analytics and cloud-primarily based platforms to the healthcare ecosystem. It can accessibility, aggregate, normalize and assess real-time and on-demand from customers affected person-distinct knowledge from a number of disparate healthcare datasets and disparate connected health care units. The company is a vital ingredient of a information-pushed healthcare ecosystem and is regarded to leverage substantial datasets that are increasing quickly to deliver differentiated capabilities to its buyers.
This corporation has been in the information not too long ago for a probable acquisition by Nordic Funds, which has led to a powerful runup in its stock price. This leaves arbitrage gamers who are late to the activity with the query, is there a even further M&A upside to the stock?
Current economic efficiency
Inovalon managed to report an all-close to conquer for its new quarterly final result. The organization described revenue of $190.44 million for the quarter finished June 30, 2021, which was up 17.40% in contrast to the $162.22 million in profits reported in the corresponding quarter of the former 12 months. The business defeat the analyst consensus estimate of $184.86 million.
By the close of the quarter, the More Registry dataset contained above 338 million exceptional clients and in excess of 63 billion healthcare functions, expanding 6% and 14% as when compared to final 12 months, respectively.
Revenues translated into a gross margin of 72.87% and an working margin of 12.73%, which were being higher than that in the similar quarter of 2020.
Inovalon described net money of $9.58 million, and its modified earnings per share (EPS) of 19 cents was 2 cents over the ordinary Wall Road expectations.
In terms of income flows, Inovalon created $25.09 million in the form of functioning hard cash flows and invested $28.76 million in investing actions through the past quarter.
Things driving revenue expansion
Inovalon is growing its datasets, connectivity and cloud-based portfolio by producing the Inovalon One particular Platform, ensuing in an accelerated launch sequence of superior-price choices. Presented the substantial market chance and escalating need for the Inovalon One System, the company is continuing to invest in its revenue as properly as a marketing motor to drive further natural and organic earnings expansion.
Additionally, the enterprise is employing its Annual Agreement Benefit (ACV) Gross sales that are coming on the internet, resulting in a layering of new gross sales on top of their existing membership-centered platform. The major layering of subscription-primarily based platform income is fuelling the company’s revenue advancement drastically. The reality that the subscription earnings represented all around 89% of the company’s whole top rated-line in the 2nd quarter of 2021 indicates the company’s business enterprise design is hugely predictable, which can make it an eye-catching expenditure for personal equity funds.
Also, the greater dimension of Inovalon’s datasets and the energy of its analytics foundation are dynamically expanding the shopper worth realization, supporting potent pricing as properly as agreement extensions. The commercial ACA, Medicare Advantage and Medicaid marketplaces are escalating at a significant-solitary-digit level, which is contributing to the advancement of the company.
Probable acquisition by Nordic Cash
As per Bloomberg stories, Inovalon is in talks to be acquired by Stockholm-primarily based personal fairness fund Nordic Funds. A closing settlement in between the two parties has not been achieved as per the writing of this report, which is why there is tiny recognition about what the final valuation of the corporation could be in accordance to an acquisition offer. Consequently, arbitrage gamers will want to decide for on their own how considerably upside they assume the stock has. Additionally, the company’s stock price tag has now shot through the roof irrespective of the actuality that there is a probability that conversations could continue to slide apart, earning it totally possible that the valuation of the deal could tumble around or under investors’ expectations.
However, there is a sturdy rationale driving the sector optimism. Nordic Cash has a concentration on healthcare and a heritage of correctly closing these types of transactions in the earlier. The business not too long ago agreed to make investments in Dutch outpatient healthcare company EquipeZorgbedrijven, adopted by an roughly $846 million offer in June for Advanz Pharma, a speciality pharmaceutical organization. So, Inovalon wouldn’t be their 1st acquisition in health care. What’s more, macro indicators also suggest a sturdy rise in health care specials this yr. Bloomberg details estimates $106 billion will be likely into acquisitions in the world-wide health care market by non-public equity cash on your own. Specified the simple fact that Inovalon has just one of the top health care databases made use of by some of the most significant insurers as very well as pharmaceutical corporations, it will not be astonishing at all if the company receives obtained by Nordic Funds or another private fairness sponsor.
As we can see in the higher than chart, Inovalon’s shares are risen sharply above the earlier 6 months, providing it a market place capitalization of roughly $5.9 billion. It is value highlighting that immediately after a long interval of major cash outflow undertaken to realize the preliminary incremental buildout of the most up-to-date Inovalon One System, there has been a downtrend in its money expenses, which is what can make it even extra appropriate for a non-public equity sponsor. Inovalon’s current modular style platform supports remarkably productive innovation as effectively as ongoing expansion of their option portfolio. Even if we dismiss the acquisition-relevant upside, for the time getting, the management’s current 2021 advice suggests a 17% organic expansion in the top rated-line, which I consider merits the increase in the stock cost.
M&A information-based mostly trades are ordinarily risky, specifically when an acquisition deal has however to be arrived at, and the essential thing is to select providers that can be held for the long-expression even if the M&A talks fail. Inovalon is one this sort of firm specified its sturdy consumer retention and deal renewals, escalating value-driven pricing strength, long contract tenures, robust underlying patient membership dynamics and excellent revenue predictability supplied the membership-dependent product. I imagine that it would surely not hurt buyers to maintain this inventory even if the acquisition talks fall aside.