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Tuesday, September 8, 2015

Molina Investing In Behavioral & Mental Health

Molina Healthcare to Acquire Providence Human Services and Providence Community Services, the Behavioral and Mental Health Subsidiaries of the Providence Service Corporation

Molina Healthcare, Inc. (NYSE: MOH) and The Providence Service Corporation (NASDAQ: PRSC) together announced today that the parties have entered into a definitive agreement whereby Molina Healthcare will acquire all the outstanding ownership interests of Providence Human Services, LLC (PHS) and Providence Community Services, LLC (PCS), both wholly owned subsidiaries of The Providence Service Corporation. Under the terms of the acquisition agreement, Molina will pay The Providence Service Corporation approximately $200 million upon the closing of the transaction, which will be subject to customary working capital adjustments. Molina intends to fund the transaction with available cash on its balance sheet. The transaction is expected to close during the fourth quarter of 2015, subject to regulatory approvals and the satisfaction of other closing conditions.

PHS is one of the largest national providers of accessible, outcome-based behavioral and mental health services and operates in 23 states and the District of Columbia. PHS’ broad national footprint is deployed on a local level enabling it to effectively target specific needs in diverse geographies. PHS generated revenue of approximately $346 million for 2014.

“We are excited to enter into this strategic transaction with The Providence Service Corporation,” said J. Mario Molina, M.D., President and Chief Executive Officer of Molina Healthcare. “The PHS and PCS platforms, coupled with their extensive experience in Medicaid, will enable us to complement our health plan offering with behavioral and mental health and other services that focus on social determinants of health. Providing access to these types of quality services is imperative, as we increasingly arrange for healthcare services for patients with complex needs.” 

“PHS is an industry leader with a strong management team and highly dedicated workforce,” said James Lindstrom, Providence’s President and Chief Executive Officer. “We appreciate our workforce’s contributions to Providence, particularly under the current PHS leadership, and believe that PHS is ready for its next stage of growth with Molina, a company with a complementary mission, vision, set of values and culture.” 

Providence intends to use 50% of the net cash proceeds from the transaction to prepay certain loans under its existing credit facility. Subject to additional management evaluation of market and business conditions, share price and other factors and evaluation and approval by Providence’s Board of Directors, the remaining net proceeds of the transaction may be used for acquisitions, investments in the long-term development of the Company’s other segments and the return of capital to stockholders through a share buyback program, among other uses. 

Molina Healthcare’s management will further discuss the acquisition of PHS, as well as several additional topics, at its upcoming investor day on September 17th in New York City. Similarly, Providence’s management will be reviewing its strategy and business operations September 18th at its investor day.

Molina Healthcare’s financial advisor is UBS Investment Bank and its legal advisor is Sheppard Mullin Richter & Hampton LLP. The Providence Service Corporation’s financial advisor is Moelis & Company LLC and its legal advisor is Paul Hastings LLP.

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