Credit Suisse https://www.credit-suisse.com sees the 2nd.MD deal providing Accolade (ACCD) https://accolade.com, a faster growing asset with ample cross-sell opportunities.
Accolade recently announced an agreement to acquire 2nd.MD a leading expert medical opinion & medical decision support company for the purchase price of up to $400 min~13x 2nd.MD’s CY20 revenue of $35 min.
Two companies will cover 9 min+ members at ~400 customers with virtually zero customer overlap. With employers increasingly focused on providing integrated benefits and offerings, Credit Suisse analysts see significant cross-sell synergy opportunities from the deal given the leading positioning of the two companies in their respective markets.
The deal also significantly expands ACCD’s payer distribution relationships. Overall, the combined TAM is now $46 bin (up from ACCD’s previous TAM of $24 bin). Analysts estimate the deal adds~$74 min of pre-synergy revenue to analyst’s CY22 revenue estimate of $240 min for ACCD.
With 2nd.MD, revenues growing at a much faster rate, ACCD’s analyst’s see the transaction being accretive to ACCD’s LT revenue growth target of 25%. As a result, analyst’s see the PF company trading at ~11x their CY22PF pre-synergy revenue estimate of roughly $314 min. This yields a TP of $60 (vs$45 previously) upside of 26% and thus an Outperform rating. Risks include integration, an increase in the unemployment rate, any major contract losses, etc.
Based on Credit Suisse’s interactions with 2nd.MD management over the past couple of years. and tracking the company’s success in expert opinion business, Credit Suisse analysts have been very impressed with the company’s growth trends and traction that the company has been seeing in the expert opinion market.
After some high profile employer contract wins, including (Delta Airlines, Credit Suisse, HP, General Electric, Vanguard, JLL, Wells Fargo, etc.) in 2020, the momentum has continued in 2021.
The note to Credit Suisse in early September reported around 68 clients were set to go live on Jan 1 (Avaya is another high profile win indication by the analyst’s ”work in progress”2021 benefit guides review). In fact, the company grew their revenues 75% in 2020 and analysts estimate the growth rate to exceed 50% Y/Y in 2021.
Credit Suisse analysts’ prior neutral rating on ACCD was predicted on concerns around the uncertainty related to some of the company’s airlines customers. The analysts have been impressed with the momentum the company has seen otherwise.
Accolade’s record adds in terms of new customers and members has seen continued momentum across all market segments and product offerings during the last selling season. The company’s current FY21 outlook is already building in offerings during the last selling season.
The company’s current FY21 outlook builds in some conservativism with respect to the COVID impact, particularly related to their airline customers. Credit Suisse’s ongoing 2021 benefit guides review points to some nice contract wins for the company, including DuPont (disclosed by ACCD on their earnings call), and USG (University System of Georgia, City of Fort Worth, etc.)
For more information, have questions, and/or provide feedback, email Jailendra Singh at jailendra.singh@credit-suisse.com or call 212-325-8121.