CVS Health (CVS) Signals Intention To Expand Its Reach With Acquisition Of Signify Health
1:21 pm Tuesday, September 06th, 2022
CVS Health’s (CVS) vision of becoming a more diversified, full-service healthcare company is unfolding today after the company emerged as the winning bidder for Signify Health (SGFY). In a deal valued at approximately $8.0 bln, CVS will pay $30.50/share for the provider of at-home healthcare services. When the Wall Street Journal reported that CVS was preparing to make a bid for SGFY about one month ago, it was far from a done deal that the two companies would agree on a transaction. In fact, some considered CVS to be the underdog as it reportedly competed against Amazon (AMZN) and UnitedHealth (UNH) in the SGFY sweepstakes.
Although an acquisition of SGFY would barely make a dent in AMZN’s balance sheet, perhaps the company wasn’t comfortable being overly aggressive in the M&A market given the macroeconomic uncertainties. On that note, Bloomberg reported last Friday that AMZN has shuttered plans of opening 42 warehouses in the U.S. due to sagging sales growth. After already bolstering its healthcare services with a $4 bln acquisition of 1Life Healthcare (ONEM) this past July, maybe AMZN didn’t feel as compelled to make another healthcare deal while its core business is softening.
Looking beyond the valuation, we believe the addition of SGFY is a good fit.
SGFY, which uses a combination of analytics and at-home visits from physicians to provide healthcare, will expand CVS’s capabilities and total addressable market. The acquisition will also complement the pharmacy business since physicians can direct patients to CVS’s pharmacies to fulfill prescriptions.
With a network of over 10,000 clinicians across the U.S., SGFY already has considerable reach. However, its reach, scale, and revenue generating potential should expand considerably with CVS’s resources behind it.
For some perspective, SGFY guided for FY22 revenue of $800-$810 mln for is Home & Community Services (HCS) segment, and revenue of $45-$48 mln from its Caravan Health acquisition.
The mid-point of the HCS revenue guidance equates to an estimated yr/yr increase of 23%.
Specifically, CVS is aiming for low double-digit EPS growth starting in 2024 and moving forward.
