Anthem To Acquire Beacon Health Options For Behavioral Health Services

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About: Anthem, Inc. (ANTM), Includes: ACHC, CNC, UHS
by: Donovan Jones
Summary

Anthem has agreed to acquire Beacon Health Options for an undisclosed sum.

Beacon provides behavioral health services to 36 million Americans.

ANTM is continuing to diversify its revenue streams and the deal for Beacon will make it the largest provider of behavioral health services in the U.S.

Quick Take

Anthem (ANTM) announced it has agreed to acquire Beacon Health Options for an undisclosed amount.

Beacon Health operates as a behavioral healthcare services provider that serves over 36 million patients in the US.

With the deal for Beacon, ANTM is continuing to execute on its stated strategy of pursuing diversified revenue streams and building out its Diversified Business Group.

Target Company

Boston, Massachusetts-based Beacon was founded in 1996 to provide behavioral healthcare services on behalf of employers, health plans and government agencies, such as emotional and mental well-being, resilience and recovery, employee assistance, as well as wellness solutions.

Management is headed by President and CEO Russell C. Petrella, who has been with the firm since 2017 and was previously CEO at AdvantageCare Physicians.

Beacon serves over 36 million patients across all 50 US states, of which nearly 3 million are covered under comprehensive risk-based behavioral programs.

Beacon’s primary offerings include:

  • Beacon Behavioral
  • Beacon Care Services
  • Beacon Wellbeing: Employee Assistance Program
  • Beacon Wellbeing: Student Assistance Program

Source: Company website

Company customers include federal, state, and local governments in the US and the UK, as well as regional and specialty health plans, employers, and labor organizations.

Source: Bloomberg

Market & Competition

According to a market research report by Market Research Engine, the global behavioral health market is projected to grow at a CAGR of 7% between 2018 and 2024.

The expected growth can probably be attributed to rising population, increasing drug use and mental disorder prevalence, rising awareness about mental health, and growing disposable income.

The depression segment is expected to dominate the market during the period.

Major competitive vendors that provide behavioral services include:

  • Acadia Healthcare (ACHC)
  • CareTech Holdings (CTH)
  • Epic Health Services
  • Pyramid Healthcare
  • Universal Health Services (UHS)
  • Elements Behavioral Health

Source: Sentieo

Acquisition Terms and Financial

Anthem didn’t disclose the acquisition price or terms and didn’t file a form 8-K or provide a change in financial guidance, so the transaction was likely for a financially non-material amount.

Management stated the deal is expected to be ‘slightly accretive to adjusted earnings in 2020.’

A review of the firm’s most recent 10-Q filing indicates that as of March 31, 2019, Anthem had $23.5 billion in cash, fixed maturity securities and other securities. It had $44.5 billion in total liabilities.

Free cash flow for the three months ended March 31, 2019, was $1.4 billion.

In the past 12 months, Anthem’s stock price has risen 20.0% vs. Centene’s (CNC) drop of 11.45%, as the chart below indicates:

Source: Sentieo

Earnings surprises have been positive for ten of the last twelve quarters:

Source: Seeking Alpha

Analyst sentiment in recent earnings calls has stabilized after dropping in early 2018, as the chart shows below:

Source: Sentieo

Anthem is acquiring Beacon Health Options as part of a diversification strategy.

As ANTM stated in the deal announcement,

The acquisition of Beacon will offer Anthem the opportunity to combine its existing behavioral health business with Beacon’s successful model and support services to fully scale integrated behavioral and physical health capabilities to customers and consumers nationwide.

Beacon is the largest behavioral health service provider in the U.S., so the acquisition will be a significant add-on to Anthem’s existing unit and the combined group will cover more than 60 million persons in the U.S.

Beacon will be integrated into Anthem’s Diversified Business Group as ANTM seeks to continue to focus efforts and resources on higher margin opportunities through diversification.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.