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VillageMD’s $8.9bn Acquisition of Summit Health

By Xunliang Huang (the University of Melbourne) and Matilda Oculy, Filip Stoilov (The University of Manchester)

Photo: Derek Finch (Unsplash)


Overview of the deal

Acquirer: VillageMD

Target: Summit Health

Implied Equity Value: $7bn

Total Transaction Size: $8.9bn

Closed date: Q1 2023

Target advisors: Barclays, Credit Suisse, Jefferies (financial), Alston & Bird (legal)

Acquirer advisors: Centerview Partners (financial), Latham & Watkins, Sidley Austin (legal)

VillageMD is set to acquire Summit Health in a deal valued at $8.9bn and expected to close in the first quarter of 2023. With a 53% ownership in VillageMD, Walgreens Boots Alliance (WBA) will support the acquisition by investing $3.5bn, equally distributed between debt and equity. The deal will enable WBA to enhance its healthcare portfolio across the care continuum, as well as its geographic coverage.

The combined entity will operate in 26 markets across 680 locations and have a workforce of 20,000 employees. Summit Health will bring its strong expertise in connected care, whilst VillageMD will bring its competence in affordable and value-based care. According to Bloomberg, the new entity would further be valued at between $5bn and $10bn.

“Summit Health-CityMD and VillageMD are patient-centred and physician-led companies that have complementary offerings and a shared core belief that taking excellent care of the patient will remain the cornerstone of our success.” - Jeff Alter, CEO (Summit Health)

Company Details (Acquirer - Village MD)

VillageMD is a healthcare company that provides high-quality primary care at free-standing practices to over 1.6 million patients in over 250 clinical locations across the United States. Working alongside Walgreens pharmacies, VillageMD is committed to lowering the costs of primary care and uses high-end equipment to extend its services throughout neighbourhoods in the US.

Founded in 2013, headquartered in Chicago, Illinois, United States

CEO: Tim Barry

Parent company: Walgreens Boots Alliance

Company Details (Target - SummitHealth-CityMD)

SummitHealth-CityMD is a physician-driven health care co-operated business that caters for the communities mostly located in New Jersey, New York, Connecticut, Pennsylvania, and Central Oregon. As its name suggests, SummitHealth-CityMD is the result of the 2019 merger between SummitHealth (founded in 1919) and CityMD (founded in 2010). SummitHealth operates as an independent physician-governed multispecialty medical group with 1,069 providers and a revenue of $208mn in 2018 pre merger (on average, $190k per provider per year). CityMD is an urgent care provider based in the New York metro area. Together, SummitHealth-CityMD seeks to provide a comprehensive and well-coordinated care delivery service to patients across 370 locations.

Founded in 1919, headquartered in New York, United States

CEO: Jeff Alter (appointed in 2021)

Number of employees: 13,000

Ownership structure: Privately listed and co-owned by private equity firm Warburg Pincus LLC and individual operating providers

Projections and Assumptions

Short-term consequences

The deal, including debt, will combine VillageMD with the operator of CityMD, the urgent care centres of which are located across north-east US. According to both companies, the combined entity will have more than 680 provider locations.

Walgreens, agreeing to invest $3.5bn as a part of the transaction, will remain the largest shareholder of VillageMD with a stake of 53% in the business. Evernorth, a subsidiary of Cigna, a health insurance company, will become a minority shareholder due to its investment of an undisclosed amount.

VillageMD is paying 19 times Summit’s estimated adjusted EBITDA for the current year, which is double the trading multiple of Walgreens. However, it does not have much of a choice. Owning physical drugstores is not as lucrative as it once was. Rival company CVS has become a much better diversified business, which includes a large pharmacy benefit management business and a leading health insurance division, while Walgreens remains overly dependent on its nearly 9,000 stores across the US. Furthermore, competition for healthcare assets has become fierce, with Amazon and CVS striking multibillion-dollar deals in the field in recent months.

Approximately 1,000 doctors and physicians, who own around 50% of the shares of Summit Health are expected to receive a sizable windfall upon completion of the deal. Additionally, employees and management in CityMD, Summit and nearly 40 other businesses, acquired by Warburg Pincus during its investment, held on to their equity interests through the mergers, giving them a significant stake in the VillageMD-Summit combination.

Long-term Upsides

The merged company will capture an increased amount of market share in the United States. The newly-gained geographic concentration in the East Coast will also allow the pro-forma company to consolidate its strong leadership position. On the other hand, with other states of the US being reached with the exposure of VillageMD, new specialty providers and emergency care companies outside NY/ NJ metro are expected to join the post-forma company. With the three divisions of healthcare including urgent care, specialty care, and primary care, VillageMD is able to create a seamless experience for patients requiring a comprehensive service.

The strategic collaboration with Evernorth will also enable the combined business to harness the breadth of Evernorth’s health services capabilities and connect patients with physicians who provide care in a value-based model like VillageMD, helping more people get access to the right care quickly.

Risks and Uncertainties

With the merger of two major healthcare providers in the East Coast, lack of competition in the medical space becomes an issue. The issue is complicated as another major pharmaceutical provider Evernorth is also partnering with the transaction and becoming a shareholder. An oligopoly market structure in the healthcare industry is already a major issue that is present in the US. The dominant position that VillageMD holds gives both the pro-forma business and Evernorth significant power over customers, potentially raising the eyebrows of antitrust authorities.

This deal will put additional pressure on CVS Health to break into the primary care business, therefore it will be interesting to see how competitive pressure fuels consolidation in US healthcare in the coming years.

“This transaction accelerates growth opportunities through a strong market footprint and wide network of providers and patients across primary, specialty and urgent care” - Roz Brewer, CEO (Walgreens Boot Alliance)


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