Healthcare company Astrana Health plans to acquire certain businesses and assets of Prospect Health System in a $745 million deal that will expand its provider care network.
Astrana announced Friday that it signed a definitive agreement to buy Prospect Health's assets and plans to use cash on hand and a $1.1 billion senior secured bridge commitment to fund the deal.
Formerly known as Apollo Medical Holdings, the company changed its name to Astrana Health earlier this year.
Prospect is an integrated care delivery system with a network of around 3,000 primary care providers and 10,000 specialists across Southern California, Texas, Arizona and Rhode Island. The company helps providers deliver care to approximately 610,000 members across Medicare Advantage, Medicaid and commercial lines of business.
Astrana plans to acquire Prospect Health Plan, a California licensed healthcare service plan; Prospect Medical Groups in California, Texas, Arizona and Rhode Island; Prospect Medical Systems, a management service organization; a pharmacy asset called RightRX; and 177-bed Alta Newport Hospital, doing business as Foothill Regional Medical Center.
The sale is expected to wrap in the middle of 2025.
Prospect is expected to generate $1.2 billion in revenue and $81 million in adjusted EBITDA on an annual basis in 2024, implying a transaction value at about 9.2 times adjusted EBITDA, according to William Blair analysts Ryan Daniels and Jack Senft.
Prospect is expected to generate approximately $1.2 billion in revenue with expected adjusted EBITDA of approximately $81 million for the 12 months ending Dec. 31, 2024.
For Astrana, a health tech company that helps providers participate in value-based care, the deal will significantly expand its provider network. Headquartered in Alhambra, California, the company serves more than 12,000 providers and over 1.1 million patients in value-based care arrangements. Its subsidiaries and affiliates include management services organizations, affiliated independent practice associations, accountable care organizations and care delivery entities across primary, multispecialty and ancillary care.
"Prospect's established presence in key markets also opens new opportunities for Astrana, particularly in geographically adjacent Orange County, California, where we today have limited operations. We believe this acquisition continues to solidify Astrana as our nation's leading healthcare delivery platform, enabling us to deliver technology-driven, longitudinal, and patient-centered care to an estimated combined 1.7 million members across the country," said Brandon Sim, president and CEO of Astrana, in a statement.
Astrana said it plans to make significant investments in Prospect and its infrastructure in order to further enhance access and quality of care for patients in local communities.
"We are excited at the opportunity to partner with Astrana to build a larger, stronger, and more coordinated care delivery network which we expect will benefit our communities by increasing access, quality, value, and efficiency," said Jim Brown, CEO of Prospect, in a statement. "We believe the strong cultural alignment, cohesive missions, and clear financial and operational synergies between our companies make Astrana the ideal partner for us. We look forward to working together to further our joint mission of delivering high-quality, affordable, and accessible care for all."
"Given the geographic overlap between Astrana and Prospect, especially in the key states of Texas, California, and Arizona, we view the transaction as highly strategic and believe the deal should drive material long-term value for patients, providers, and shareholders," Daniels and Senft with William Blair wrote in a research note.
In October, Astrana finalized its acquisition of management services organization Collaborative Health Systems from Centene.
Factoring in the acquisitions of Collaborative Health Systems and Prospect Health, Astrana’s pro forma revenue will be over the $3 billion mark for 2024, Daniels and Senft wrote, "making the organization one of the largest integrated care delivery and VBC providers in the country."
"We believe this acquisition will fit nicely into the existing Astrana Health portfolio, specifically looking at the three business segments: care partners, care delivery, and care enablement," Daniels and Senft wrote.
Prospect Health Plan could be a good fit with Astrana's care partners business, they noted, and Prospect Medical Groups in four states fit within care partners. Foothill Regional Medical Center and Prospect’s pharmacy RightRx will likely be included in the care delivery segment. Further, Prospect Medical Systems fits within Astrana's care enablement business and is complementary to its existing technology stack and MSO offering, the analysts wrote.
"We believe that adding an integrated care delivery system and MSO platform to Astrana’s portfolio will prove highly beneficial as it increases Astrana’s scale, brings additional capabilities to the platform, and should provide synergistic opportunities within the next few years. Management expects 'at least' $12 million in synergies by 2027, although we believe this is likely a conservative estimate," Daniels and Senft wrote.
By adding another 610,000 value-based care lives onto its platform, Astrana will have more than 1.7 million members in value-based care arrangements once the transaction closes—again an industry-leading position, they noted in the research note.
In the third quarter, Astrana reported its revenue jumped 37% to $479 million, and its care partners revenue grew 42% to reach $456 million. The company logged net income of $16.1 million, down 27% year over year. Earnings per share declined to 33 cents per share, down 30% from 47 cents per share a year ago.
Medical Properties Trust, a large real estate owner, said it expects to receive approximately $200 million in total proceeds after satisfaction of obligations to the managed care platform’s senior creditor and other liabilities. The majority of this cash is expected to be received in the first half of 2025, while a $50 million payment is expected by 2027, MPT said in a press release.