Chicago-based Valence Health is splitting into two businesses and selling the biggest piece to publicly traded Evolent Health in a $145 million cash and stock deal.
Privately held Valence was founded in 1996 and is currently majority-owned by its founders and management. It also has private equity investors that include Massachusetts-based North Bridge, Nashville, Tenn.-based Heritage Group, Menlo Park, Calif.-based GE Ventures and Boston-based Flare Capital Partners.
Evolent, whose headquarters are in Arlington, Va., is buying Valence operations that account for more than 70 percent of the company’s revenues. Those include contracts to help health care providers get reimbursed for their care. Those 95 clients include a Cook County health plan with 160,000 consumers, as well as NorthShore University HealthSystem and Lurie Children’s Hospital of Chicago.
Last year, Cook County’s public health system picked Valence to oversee its Medicaid managed-care plan, after firing the administrator earlier in the year. Valence beat three other bidders for the contract, which is worth $72.1 million over three years and includes two one-year renewal options.
“While Valence has a similar offering to Evolent, they also fill in some very important gaps, particularly in Medicaid,” Evolent Chief Executive Frank Williams said in a call with analysts Wednesday morning. “They’re working with some fantastic organizations including the University of Chicago, Cincinnati Children’s (Hospital), NorthShore and many others.”
The remaining part of the business, accounting for more than $35 million in annual revenues, will become a new, Chicago-based entity called Cicerone and will consist of the contracts that help operate five state insurance cooperatives, which are the nonprofits established by Obamacare to serve health care customers in various states. Those cooperatives are in Illinois, Maine, New Mexico, Maryland and Oregon. Cicerone will be owned by current Valence shareholders.
Valence has about 900 workers, of which 700 will join Evolent. Of those 900 workers, about 450 are in the Chicago area.
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No layoffs are expected, Valence Chief Executive Andrew Eckert said.
In its analyst call, Evolent referred to “synergies,” which can mean cost-cutting.
Valence received $11.9 million in state tax incentives in 2014 to expand its workforce and invest in a new West Loop headquarters.
The CEO of Cicerone will be Valence’s current chief financial officer, Eric Mollman.
The deal is expected to close within 120 days.
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