Accolade Inks $460M Deal To Buy 2nd.MD; Shares Rally 9%

Shares of Accolade rallied 9.4% after the telemedicine company announced an agreement to buy personalized medical expert company, 2nd.MD, in a deal valued at $460 million.

Under the terms of the deal, Accolade (ACCD) will pay $230 million in cash, $130 million in Accolade common stock, and up to $100 million of its common stock payable upon the achievement of defined revenue milestones following the closing. The transaction, which is still subject to closing conditions, is expected to close by the end of February this year.

The deal comes as Accolade sees the use of healthcare services increasing significantly in 2021, due to the COVID-19 pandemic. Accolade provides personalized, technology-enabled solutions that help people better understand, navigate and utilize the healthcare system and their workplace benefits. Houston-based 2nd.MD offers medical expert and medical decision support services.

“We share a common vision to help every person live their healthiest life by dramatically improving quality and accessibility of care through a people-focused, clinically-driven support model. Bringing 2nd.MD’s world-class Care Team and digital approach with expert medical consultation into Accolade, and continuing to offer it on a stand-alone basis, will have an immediate and measurable impact for our customers, their employees, and the health plans we work with,” said Accolade CEO Rajeev Singh. “Both companies have built deep relationships with employers and health plans by helping employees navigate the increasingly complex and inconsistent healthcare system. With the addition of 2nd.MD, we’ll nearly double our total addressable market while providing the most comprehensive, integrated healthcare navigation experience available.”

Accolade said that the transaction with 2nd.MD will expand its addressable market by an estimated $22 billion. The deal is expected be accretive to the company’s revenue growth rate in fiscal 2022.

Moreover, the telemedicine company disclosed that it intends to provide more financial details after the acquisition is completed. For the calendar year ended Dec. 31, 2020, 2nd.MD reported unaudited revenues of about $35 million. The company is currently serving more than 300 customers covering more than seven million members. 

Canaccord Genuity analyst Richard Close on Jan. 7 reiterated a Buy rating on the stock with a Street-high price target of $59 (24% upside potential) after the company reported a “strong fiscal 3Q’21 beat versus estimates that exceeded the top-end of the guidance range.”

“We believe employer-focused tech-enabled models are well positioned for growth in the coming year,” Close wrote in a note to investors. “Management is proving to take a conservative stance and managing expectations, which is understandable given the uncertainty created during the pandemic; however, it does appear that the beat-and-raise scenario can continue.”

“Further, given the strong member engagement and strong medical spend control during the pandemic, the company appears to have high visibility into performance-related revenue that is predominately recognized in 4FQ,” the analyst summed up. (See ACCD stock analysis on TipRanks)

From the rest of the Street, the stock scores a Strong Buy analyst consensus, which breaks down into 8 Buys versus 2 Holds. The average price target of $51.78 implies about 10% upside potential from current levels. That’s after shares surged more than 60% during the course of the past year.

Meanwhile, Accolade gets a 5 out of 10 on TipRanks’ Smart Score tool, which indicates that the stock is most likely to perform in line with market averages.

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