By William Dinsdale and Bilal Rashid (LSE), Friedrich von Storch, Enrique Perez-Hernandez and Ties Oudmayer (IE)
Photo: Nathaniel Yeo (Unsplash)
Overview of the deal
Acquirer: CVS Health
Target: Signify Health
Total Transaction Size: $8bn
Closed date: Expected completion in H1 2023
Target advisors: Goldman Sachs and Deutsche Bank
Acquirer advisor: Bank of America
On Monday, September 5th 2022, CVS Health (NYSE: CVS) announced that it entered into an agreement to acquire Signify Health (NYSE: SGFY) for approximately $8bn. In the deal, CVS said it will pay a consideration of $30.50 per share in cash, a 6% premium to Signify’s closing price on Friday, September 2nd 2022. Signify is a leading provider of in-person and virtual health assessments in the US, boasting a network of more than 10,000 clinicians across all 50 states.
The deal is one of the first moves under CVS’s strategy of expanding its healthcare services business and it will enable the company to accelerate growth of its value-based care programs. It comes as competitors such as UnitedHealth Group, Amazon and Walgreens have been further moving into the healthcare sector, signalling consolidation. Following the announcement, the US Department of Justice has requested for additional information around the deal, indicating that CVS could potentially face a tough antitrust investigation rather than a quick approval. The transaction is expected to close in H1 2023.
“Signify Health will play a critical role in advancing our healthcare services strategy and gives us a platform to accelerate our growth in value-based care” - (Karen Lynch, CEO of CVS Health)
Company Details (Acquirer - CVS Health)
CVS Health is America’s largest drugstore chains, providing integrated healthcare services. The company operates retail specialty pharmacy stores and special mail order pharmacies. CVS Health has over 9,900 retail pharmacies and 90 million plan members.
Founded in 1892, headquartered in Woonsocket, United States
CEO: Karen S. Lynch (since 2021)
Number of employees: 295,000
Market Cap: $121.7bn (as of 28/10/2022)
LTM Revenue: $306.9bn
LTM EBITDA: $18.8bn
LTM EV/Revenue: 0.60x
LTM EV/EBITDA: 9.75x
Company Details (Target - Signify Health)
Signify Health, Inc. operates a healthcare platform that utilises analytics, technology and healthcare provider networks in the US. Through their Home & Community Services segment, they provide health evaluations at patient’s homes or healthcare provider facilities, alongside running diagnostic screenings and other ancillary services. They also work to enhance healthcare delivery through their development of episodic payment programs under their Episodes of Care Services segment.
Founded in 2017, headquartered in Dallas, Texas
CEO: Bradford Kyle Armbrester
Number of employees: 2,300
Market Cap: $ 8.55bn (as of 28/10/2022)
LTM Revenue: $843.3mn
LTM EBITDA: $135.7mn
LTM EV/Revenue: 9.1x
LTM EV/EBITDA: 56.7x
Projections and Assumptions
Since the CVS deal for Signify was announced, concerns regarding antitrust regulation have risen to the surface. As a result, the deal will have to face a strict U.S. antitrust review. However, in order to ease antitrust concerns, CVS is emphasising that Signify is not their competitor as it offers different products and services. Nevertheless, The American Economic Liberties Project is pressuring antitrust regulators, arguing CVS is a healthcare powerhouse and expanding its market power could be dangerous. In spite of that, CVS Chief Financial Officer, Shawn Guertin, has said that other acquisitions, such as buying Signify, lie within their inorganic growth plans.
Besides the regulatory problems the deal is facing, Signify is looking ahead and making plans. CEO Kyle Armbrester will remain as the head of the division, and he has said the company is looking to expand to commercial health plans. Furthermore, Signify plans to service 2.5 million people through both virtual and in-person health assessments. In addition, the implementation of technology and analytics to follow their patients will allow for lower costs in the near future. In addition, CVS expects to leverage on Signify’s pharmacy benefits, and network of 10,000 clinicians who provide home-based assessments of patient health and social needs and potential clients for the health insurance plans.
The global healthcare industry is expected to grow at a CAGR of 8.4% to reach a staggering size of $6 trillion in 5 years. The acquisition of Signify will aid CVS’ growth by enabling the business to break into the at-home, value-based healthcare sector. Signify brings to the deal over 10,000 clinicians, bolstering CVS’ primary care offering and boosting the rollout of their “Health Hub” acute care centres. With a projected uptake in the number of services offered both on-site and at a local level, we expect a more efficient consultation process for patients who can now receive treatment from the comfort of their home.
Another key motivation for the deal stems from Signify’s expansive and innovative proprietary analytics and technology solutions, which CVS will look to rapidly fold into its own data analytics and actuarial services programme as part of its insurance division, Aetna. “Signify Health will play a critical role in advancing our health care services strategy and gives us a platform to accelerate our growth in value-based care,” said CVS’ Health President and CEO, Karen S. Lynch.
Risks and Uncertainties
One of the main concerns surrounding the acquisition comes from the high likelihood of a full-scale Department of Justice antitrust review. CVS’ direct competitor, UnitedHealth Group, controversially completed their acquisition of Change Healthcare for $13 billion, after months of antitrust scrutiny. Due to insufficient evidence in proving that the deal would give UHG access to its competitors’ health plans and an unfair advantage, the DOJ lost its case. Nonetheless, given that affordable healthcare is a key deliverable of Biden and the Democratic party, it is unlikely that the DOJ will let another takeover of this size slip through the net.
Concerns are also being raised about the potential impact on patient care, with clinicians being forced to give internal referrals instead of having the liberty to do so externally. This is of particular importance given the at-home nature of the care Signify offers with their clientele as well as their overall demographic. Being the most vulnerable group, patients may not have the knowledge or means to freely switch to another service provider, giving CVS the dangerous liberty to raise prices without fear of thinning out its customer base.
“Signify Health's mission is to build trusted relationships to make people healthier by using actionable intelligence to understand what's really impacting outcomes and costs today. As we carefully considered our long-term strategic options, we determined that CVS Health is the ideal partner, given its focus on expanding access to health services and helping consumers navigate to the best sites of care.” - (Kyle Armbrester, CEO of Signify Health)