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Tivity Health Sells Nutrition Business For $575M; Analyst Calls Deal ‘A Clear Positive’

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Tivity Health (TVTY) has entered into a definitive agreement with private equity firm Kainos Capital to sell its Nutrition Business (which includes Nutrisystem and the South Beach Diet) for $575 million in cash.

The transaction comes at a clear loss to Tivity which snapped up Nutrisystem for $1.3 billion in a deal that was announced at the end of 2018, but only closed in March 2019.

According to Tivity, the transaction will best enable it to focus its resources on its core healthcare business, which is better set for long-term, sustainable growth.

It will use the divestiture proceeds to pay down debt, which will materially de-lever its balance sheet and provide additional financial flexibility to support the growth of its Healthcare Business.

Richard Ashworth, CEO of Tivity noted that the company’s Healthcare Business benefits from Medicare Advantage tailwinds with the number of overall Medicare Advantage beneficiaries expected to grow by about 10% in 2021.

“SilverSneakers continues to be a national leader in senior fitness and provides a strong foundation to build innovative, high-quality digital offerings at scale” said Ashworth.

He added: “When we combine our assets with new digital capabilities and our long-standing customer relationships, we believe we are uniquely positioned to become the modern destination for healthy living for seniors and older adults.”

The transaction is expected to close in the fourth quarter of this year, subject to regulatory approval and other customary closing conditions. (See TVTY stock analysis on TipRanks)

Shares in Tivity rose 1.6% on Monday, but are currently trading down 23% year-to-date. The stock has a cautiously optimistic Moderate Buy Street consensus, while the average analyst price target stands at $18.10 (15% upside potential).

Following the news Piper Sandler’s Sean Wieland reiterated his hold rating on TVTY with a $10 price target (36% downside potential). He calls the transaction a ‘clear positive’ but is staying on the sidelines as Covid-19 brings “potentially existential pressure” to the core SilverSneakers business.

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