Healthcare technology provider Evolent Health Inc (EVH.N) is exploring a potential combination with Advisory Board Co (ABCO.O), the business consulting company targeted by activist fund Elliott Management, people familiar with the matter said.
A merger of all or some of their businesses would bring together two companies with common roots, given that Advisory Board helped launch Evolent five years ago.
Evolent Health shares jumped as much as 14 percent on the news and ended trading up 4.8 percent at $20.85, giving the company a market capitalization of $1.4 billion. Advisory Board shares ended flat at $44.70, giving the company a market capitalization of $1.8 billion.
Evolent has held talks with private equity firms about getting financial backing for an offer, and there is no certainty that it will clinch a deal, the people said on Friday.
Advisory Board has also attracted the interest of other companies, including healthcare data company Press Ganey Associates Inc, the people said. Advisory Board received preliminary offers this week, and will continue discussions with bidders in the coming weeks, the people added.
A deal could involve the sale of the entire company or just a divestment of its healthcare division, the people said.
The sources asked not to be identified because the negotiations are confidential. Advisory Board, Evolent and Press Ganey did not respond to requests for comment.
Based in Washington, D.C., Advisory Board offers IT systems, research and consulting services to help physicians and hospitals. It also has a higher education consulting business.
Advisory Board said in February it would explore options, including a sale of part or the entire company, after Elliott said the company's stock was "significantly undervalued". Elliott holds 8.3% percent of Advisory Board's shares, according to public filings.,
In recent years, several other companies that Elliott had invested in have been sold, including American Capital, LifeLock and Mentor Graphics.
In January, Advisory Board said it would cut 220 jobs, or 5.7 percent of its workforce. It reported net income of $37.2 million for the fourth quarter of 2016, compared to a net loss of $105.3 million for the fourth quarter of 2015.
Barclays analyst Eric Percher said in a research note that Advisory Board could be worth as much as $56 in a sale, based on his analysis of the value of its individual business units.
Based in Arlington, Virginia, Evolent was founded in 2011 by a collaboration between Advisory Board and UPMC Health Plan, which is owned by University of Pittsburgh Medical Center. It went public in 2015, with private equity firm TPG Global as one of its investors.
Advisory Board had a 6.1 percent economic interest in Evolent and owned 13.7 percent of the company's voting stock as of the end of December. Evolent's Chief Executive Officer Frank Williams, was formerly the CEO of Advisory Board.
(Reporting by Carl O'Donnell in New York; Editing by Bernard Orr)