WEX signs agreement to acquire Discovery Benefits for $425M

Photo / Tim Greenway Melissa Smith, president and CEO of WEX Inc., announced today the company has signed an agreement to acquire Discovery Benefits Inc., a high-growth employee benefits administrator based in Fargo, N.D., for $425 million.

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By James McCarthy

WEX Inc. announced today it has signed an agreement to acquire Discovery Benefits Inc., a high-growth employee benefits administrator based in Fargo, N.D., for $425 million.

Founded in 1987, Discovery Benefits has more than 750 employees and serves consumer-directed health care markets by offering account administration technology and services to more than 1 million consumers across all 50 states.

According to the latest research from Devenir on the top 20 health savings account providers, DBI is the fastest-growing provider. The company generated approximately $100 million in revenue during 2018. It also has been named to Inc. 5000’s fastest-growing private companies list for six consecutive years, achieving 119% revenue growth from 2014 to 2017, with reported revenues of $81.2 million in 2017, according to Inc. magazine.

In a news release announcing the agreement, WEX said the acquisition advances two strategic goals:

Advances WEX’s employee benefits platform with the addition of one of the fastest-growing solutions providers in the marketplace
Complements WEX’s technology platform with leading benefits account technology.

“The acquisition of Discovery Benefits enhances WEX’s position as a leading technology platform in the health care space and aligns with our longer-term strategy to further reduce exposure to macroeconomic forces,” WEX CEO Melissa Smith said in the news release. “This combination strengthens our overall value proposition through new partnerships, integrated products and the opportunity to offer a more comprehensive set of solutions. We are excited to extend our reach into the rapidly-growing employee benefits market and look forward to building on our track record of success in the health care space.”

Deal expected to close in Q1 2019

Under the terms of the agreement, WEX will pay a total cash consideration of approximately $425 million, including $50 million that will be deferred until January 2020. In addition, the transaction is expected to generate approximately $50 million in net present value of tax benefits.

WEX said it is in advanced discussions with its relationship banks to expand available borrowing capacity and expects to announce further details regarding these arrangements in the near future.

The sellers of DBI will also retain an equity interest of approximately 5% of the entity resulting from the combination of WEX’s health division and Discovery Benefits.

WEX said the impact of the acquisition on its adjusted net income would be “immaterial” this year and expects $15 million in annual run-rate synergies within the first 24 months following the close of the transaction.

The transaction is expected to close in the first quarter of 2019, subject to regulatory approvals and other customary closing conditions.

DBI: A tech leader

The two companies have been “well-established” partners for more than a decade, WEX stated in its release, with DBI utilitizing WEX’s proven health care technology platform to manage a portion of its consumer-directed account administration.

“This acquisition will combine one of the industry’s fastest-growing benefits administrators — known for its leading benefits account technology — with WEX’s dynamic, cloud-based technology platform,” WEX said. “The acquisition is expected to accelerate WEX’s growth rate, provide partners and customers with a more comprehensive suite of products and services, and expand the company’s diverse go-to-market channels to include consulting firms and brokers.”

In December, Discovery Benefits was selected as a 2018 Workflow Management Coalition award winner in the “business transformation” category for its technology initiatives leveraging the OnBase software developed by Hyland. The award recognizes companies using innovative technology “with the aim of achieving significant competitive advantages.”

According to Workflow Management Coalition, Discovery Benefits built multiple “case-driven” applications across the organization, including an online service platform giving customers control of their policy renewal, account information and service requests.

"Taking a holistic, enterprise approach to information management has helped us break down data silos, eliminate IT sprawl and gain greater control of our clients' information to offer the best services possible to our customers," said Dean Johnson, OnBase manager at Discovery Benefits.

Johnson said OnBase case management solutions have allowed the company to increase the volume of output and compete against larger third-party administrators.

About WEX Inc.

WEX (NYSE: WEX), which will be moving into its new global headquarters in Portland next month, ended 2017 with $1.25 billion in revenues. It reported on Oct. 31, 2018, it was on track to end 2018 with revenues in the range of $1.48 billion to $1.49 billion for the full year. As a leading financial technology service provider across a wide spectrum of sectors, including fleet, travel and health care, it operates in more than 10 countries and in more than 20 currencies. It has more than 3,500 employees globally. Its fleet cards offer payment security and control to 11.5 million vehicles and its travel and corporate solutions grew to $30.3 billion in 2017. WEX Health’s financial technology platform helps 300,000 employers and more than 25 million consumers better manage health care expenses.