HealthEquity Inc. (HQY) made a bold move to acquire WageWorks for approximately $2 billion in an all-cash deal. This acquisition will expand HealthEquity’s moat in the Health Savings Account space while providing new revenue verticals in complementary product offerings. This move will expand HealthEquity’s total addressable market as Consumer-Directed Benefits (CDBs) via pre-tax spending accounts such as additional Health Savings Accounts (HSAs), health and dependent care Flexible Spending Accounts (FSAs), health reimbursement accounts (HRA), Commuter Benefit Services, wellness programs, COBRA and other employee benefits are absorbed into its product offerings. This acquisition provides access to a larger client base and access to health brokers that will help drive HealthEquity’s penetration. The majority of HSA clients would prefer to have its CDBs administered by its HSA provider, and more than 50% of HealthEquity’s clients have requested a CDB product. The combination of WageWorks’ leading consumer-directed benefits with HealthEquity’s HSA platform will be highly synergistic and drive growth while expanding the total addressable market in years to come.
HealthEquity’s Unique Positioning
A potential economic slowdown, a trade war with China, tariffs, yield curve inversion, etc., are irrelevant when it comes to HealthEquity. HealthEquity’s business model is such that it stands as an intermediary servicing the secular growth Health Savings Account (HSA) space that’s largely independent of legislative actions, drug pricing, rising insurance costs while not playing any role in the pharmaceutical supply chain from health insurers to end-user pharmacies. The company simply manages funds allocated for medical, dental and vision expenses that are deducted on a pre-tax basis and deposited into a dedicated HSA account. The HSA space has grown in popularity as corporate adoption has allowed access to these plans in conjunction with consumer awareness.
HealthEquity is an intermediary that connects health and wealth to consumers of healthcare. Think of this as a parallel to the credit card companies that only focus on the transactions and not the financial liability of the card user. The banks take on the financial liability of the branded card (i.e., Visa or Mastercard) and merely facilitate the financial transaction. HealthEquity has partnerships with over 45,000 employers and 141 health, retirement, and other benefit plan providers nationwide. HealthEquity is the custodian of $8.3 billion in assets for 4.1 million HSA members nationwide. The company continues to post quarter after double-digit quarter growth in revenue and EPS without any debt on the balance sheet. Recently, the company released its Q1 2020 results Continue reading "Transformative Combination of HealthEquity and WageWorks"