Overview
ONEM announced the acquisition of Iora Health this morning, a membership based primary care practice focused on the Medicare market. The combined entity is expected to grow mid 30% range for the next decade. If we roll forward all of the assumptions we arrive at $2,920M in 2025 revenue and at an EV/EBITDA multiple of 8X a share price of $118. Applying a discount of 15% we get to a present value of $67 for the combined entity. On one hand Iora dilutes the attractiveness of the high mix of commercial membership for core One Medical, but has upgraded the combined growth rate and added to the scale. While management touts the opportunity to cross sell between family members, we are less convinced that is a significant opportunity. After the accelerated growth, we think the acquisition increases ONEM's leverage with their in-market providers to drive cost and quality, particularly as they take risk.
Thesis
The new Medicare program for Direct Contracting is a key driver of the investment as both companies have a strategy of developing strong relationships with their member patients while spending less on medical care, a good set up to take risk over an extended period of time. One of the aspects of the the rapid march of primary care practices into value-based care and at-risk arrangements, while a small part of the overall market, points to a potential longer term strategic challenge for Medicare Advantage plans generally.
ONEM is now more closely aligned with the profiles of Oak Street (OSH), Cano Health (CANO), and Privia Health (PRVA), among others. We are keeping ONEM on the Health Care Position Monitor as a Best Idea Long and will be following up with more detail.
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Thomas Tobin
Managing Director
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