Dive Brief:
- VillageMD has agreed to acquire medical practice Summit Health for $8.9 billion including debt, the primary care provider announced Monday.
- VillageMD, which is majority owned by pharmacy chain Walgreens, and Summit Health, the parent company of CityMD, plan to combine their provider locations and VillageMD’s experience with value-based care to help accelerate the transition to risk for payer clients.
- Cigna’s health services division Evernorth is also taking a stake in the deal, and will become a minority owner in VillageMD at the deal’s close, expected in the first quarter of 2023.
Dive Insight:
The deal first reported in late October is the latest in a string of M&A in the primary care space from large companies looking to step deeper into healthcare. Walgreens has been particularly active, creating a U.S. healthcare division comprised of VillageMD, specialty pharmacy company Shields Health Solutions and at-home care provider CareCentrix, along with other health ventures.
Walgreens previously expected the division to reach profitability in 2024. However, acquiring Summit “accelerates [Walgreens’] path to profitability for its U.S. Healthcare segment,” with profitability now expected by the end of the 2023 fiscal year, according to a release on the deal.
Walgreens first invested in VillageMD in 2020 before doubling its ownership stake a little more than a year ago with an additional investment of $5.2 billion in the primary care services provider, increasing its stake from 30% to 63%. Walgreens plans to build 1,000 primary care clinics inside its pharmacies by 2027 in partnership with VillageMD.
Summit Health was created in 2019 through the merger of Summit Medical Group and CityMD, an urgent care provider in the New York metro area. The provider has more than 370 locations in New Jersey, New York, Connecticut, Pennsylvania and Oregon, according to its website.
It’s currently owned by New York-based private equity firm Warburg Pincus, which acquired CityMD in 2017 and took a majority stake in Summit following the merger.
According to reporting by The Wall Street Journal, Walgreens preempted a sales process that Summit was expected to kick off next year. Summit was about to interview banks before it received acquisition interest from VillageMD.
Together, VillageMD and Summit will have more than 680 provider locations in 26 markets.
In a statement, Summit CEO Jeff Alter said the two companies have “complementary offerings” that will drive future success.
“Adding our expertise and geographic coverage to VillageMD’s proven value-based primary care approach will enhance the lives of so many patients and physicians across the country, helping to lower healthcare costs and improve the health of our communities. We are incredibly excited about the potential of these combined companies,” Alter said.
Walgreens will invest $3.5 billion through an even mix of debt and equity to support the acquisition, and will retain 53% ownership in VillageMD after the deal closes.
The transaction is expected to be slightly accretive to Walgreens’ earnings in 2023.
The report comes amid a frenzy of M&A activity in the primary care space, including Amazon’s $3.9 billion purchase of One Medical in July and CVS Health’s deal to acquire Signify Health for roughly $8 billion last month.
CVS was also reportedly in exclusive talks to purchase primary care provider Cano Health, though the two have since tabled discussions. Cano has also received interest from insurer Humana, the WSJ has reported.
