CVS might seem like your average, run-of-the-mill healthcare provider, with its network of retail pharmacies and claims processing business. But it's always been on the lookout for bigger opportunities and to diversify its offerings. Truth be told, the company has been on a mission to transform itself into a healthcare company since 2014, when it stopped selling cigarettes and tobacco products¹ — a seemingly obvious choice for a healthcare company, but one that would cost it $2 billion that year.²
Since then, CVS has made a series of acquisitions, adding different businesses to its portfolio in order to disrupt healthcare and grow its empire. Most recently they acquired Signify Health, a homecare health provider, for $8 billion in a deal to cement its new image as a health-care company.³
The lowdown
In August of this year, CVS released its Q2 2022 Earnings Call where its president and chief executive officer hinted at the company's plans to extend its health services into primary care, stating it would not be possible without a M&A strategy.⁴ Coincidentally, Signify Health was exploring a sale at the same time, working with industry experts to explore strategic alternatives, 18 months after they went public. Though the talks were in early stages, with no deals guaranteed in lieu of the current financial markets, many leveraged buyouts have been put on hold.⁵ The news sent CVS knocking on Signify’s door a few days later, inquiring about a initial bid along with other competitors.⁶
For the past several years, CVS has continuously added to its repertoire of companies and services, branching out beyond its drugstores. So far they have acquired insurer Aetna⁷, pharmacy benefits manager Caremark⁸ and MinuteClinic⁹ where customers can get vaccines or urgent care. Now they are looking to add a missing piece to their puzzle and discover new ways to strengthen customer loyalty, especially as consumers look to online solutions rather than in-store services. A deal with Signify would offer them analytics and technology to help a network of 10,000 doctors provide in-home health care to 2.5 million patients across the United States.¹⁰
On Monday, while the rest of the market was enjoying the last soiree of the summer, CVS was busy locking up a $8B deal with Signify in which they would pay $30.50 a share in cash. The deal is expected to close in the second half of 2023, providing regulatory and shareholder approval and Signify will continue to operate as a separate business within the larger company and serve its existing network of clients from over 50 health plans³. News of the announcement sent both companies’ shares up almost 7% and 1% respectively, in after hour trading.¹¹ In the last month, Signify Health’s shares have surged nearly 45% to give it a market value of about $6.7 billion at Friday’s close of $28.77 per share, according to FactSet¹⁰.
Competition
Innovation in health care has led to deal-making in the industry. While CVS has invested in disruptive health technologies, its competition has already acquired stakes in the primary home care sector.
Starting off with its direct competitor Walgreens announcing a $5.2 billion investment in VillageMD to increase its 30% stake in the primary care business to 63% – by 2027, Walgreens plans to have 1,000 primary care practices at its stores.¹² Followed by Amazon, who recently acquired One Medical in July, a chain of boutique doctor offices, for about $3.9 billion.¹³ The news was a bit of a sore subject for CVS, which also put in a bid for this company but lost out to the e-commerce giant.
CVS’s recent move follows suit with the current healthcare deal-making as it looks to carve out its own position in a fast-moving market.
Overall, despite CVS’s current situation, investors should not only be focused on recent losses and should conduct their own research to weigh the pros and cons of before investment.
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1 https://www.cvshealth.com/news-and-insights/articles/cvs-quits-a-message-from-larry-merlo-president-and-ceo
2 https://www.bloomberg.com/news/articles/2014-08-06/cvs-cigarette-ban-2-billion-in-lost-sales-and-not-just-tobbaco
3 https://www.cvshealth.com/news-and-insights/press-releases/cvs-health-to-acquire-signify-health
4 https://s2.q4cdn.com/447711729/files/doc_financials/2022/q2/CVS-Q2-2022-Transcript.pdf
5 https://www.wsj.com/articles/signify-health-considers-strategic-alternatives-including-a-sale-11659471113?mod=article_inline
6 https://www.wsj.com/articles/cvs-plans-to-bid-for-signify-health-sources-say-11659890029?mod=latest_headlines
7 https://www.cvshealth.com/news-and-insights/press-releases/cvs-health-completes-acquisition-of-aetna-marking-the-start-of
8 https://www.fiercehealthcare.com/healthcare/cvs-to-acquire-caremark-rx
9 https://www.crunchbase.com/acquisition/cvs-caremark-acquires-minuteclinic–91911fd4
10 https://www.cnbc.com/2022/09/05/cvs-to-buy-home-health-giant-signify-health-for-about-8-billion.html
11 https://www.nytimes.com/2022/09/05/business/cvs-signify-health.html
12 https://news.walgreens.com/press-center/walgreens-boots-alliance-makes-52-billion-investment-in-villagemd-to-deliver-value-based-primary-care-to-communities-across-america.htm
13 https://press.aboutamazon.com/news-releases/news-release-details/amazon-and-one-medical-sign-agreement-amazon-acquire-one-medical
