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WEX Inks Deal to Purchase Discovery Benefits For $425 Million

Zacks Equity Research

WEX Inc. WEX is acquiring Discovery Benefits, Inc. (DBI) for $425 million in cash which includes $50 million to be deferred till January 2020.

Discovery Benefits is a high-growth employee benefits administrator serving more than one million consumers across 50 states. The company offers account administration technology and services.

Subject to regulatory approvals and other customary closing conditions, the deal is anticipated to close in first-quarter 2019.

We observe that shares of WEX have gained 9.1% in the past year, outperforming the 5.8% rise of the industry it belongs to.

 

Deal Details & Expected Benefits

WEX expects to witness at least $15 million of annual run-rate synergies in the first two year following the deal-closure. The sellers of Discovery Benefits will retain nearly 5% equity interest of the combined entity.

The buyout will see the integration of WEX’s cloud-based technology platform with Discovery Benefits’ leading benefits account technology. This should boost WEX’s position as a technology platform in the healthcare space and enhance its employee benefits platform.

WEX will be able to offer a comprehensive suite of products and include consulting firms and brokers into its diverse go-to-market channels.

Discovery Benefits has already been in a longstanding partnership with WEX’s Health division, so the takeover formalizes its status.

The acquisition is likely to boost WEX’s Health and Employee Benefit Solutions segment —which reported 1.2% year over year decline in revenues in third-quarter 2018 —on the back of macroeconomic headwinds in Brazil.

Zacks Rank & Stocks to Consider

WEX carries a Zacks Rank #4 (Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

A few better-ranked stocks in the broader Zacks Business Services sector include Waste Connections WCN, Booz Allen Hamilton BAH and Republic Services RSG. While Waste Connections sports a Zacks Rank #1, Booz Allen Hamilton and Republic Services carry a Zacks Rank #2 (Buy).

Long-term expected EPS (three to five years) growth rate for Waste Connections, Booz Allen Hamilton and Republic Services is 11.7%, 14.4% and 10.7%, respectively.

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