UBS Investment Research – Matria to acquire CorSolutions

Feb 12, 2010

Transformational transaction – expect diversitures to follow

The acquisition of CorSolutions (Cor), coupled with the expected divestiture of the company’s Facet and German disease management business should bring MATR much closer to its goal of being a purely disease management provider. This transaction will significantly consolidate the “direct to employer” DM niche, leaving MATR as the clear leader in this segment of the business.

Significant synergies expected

We note that MATR’s head of sales, Pat Cua held a similar position at Cor prior to joining MATR in Jan ’05. Given Mr. Cua’s history, we are confident he will be instrumental in helping MATR bring stability to Cor and allow MATR to quickly achieve synergies through leveraging its systems and infrastructure as well as selling MATR’s enhanced capabilities through to Cor’s clients.

$445m purchase price, acquisition to be accretive in ’06

MATR announced that Cor is expected to generate revenue of $120m in ’05, with op income of $32m and EBITDA of $38m. While the acquisition is expected to be accretive in ’06 and “significantly accretive” in ’07, we are unsure if that is before or after the impact of anticipated diverstiture activity. We expect further details on MATR’s call this morning at 10am.

Valuation: Buy 2 (RRD); PT $42

Our price target of $42 represents a target multiple of 30% our ’06 EPS estimate of $1.40.

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