CVS Health (CVS) announced earlier this week that it has entered into a definitive agreement to acquire leading health risk assessment, provider enablement and value-based care provider Signify Health, Inc. (SGFY) for $30.50 per share in cash, which represents a 44% premium to where SGFY’s stock closed before rumors of a potential takeover began to emerge on August 22 and amounts to a total transaction value of roughly $8 billion. With $12.1 billion of cash at the end of its most recently reported quarter and CVS on pace to generate between $12.5 billion and $13.5 billion in operating cash flow this year alone, the company shouldn’t have any issues funding this transaction. In fact, it’s optimistic in its ability to retain its investment grade credit rating even with the additional leverage this will bring.
Naysayers may be quick to argue that CVS is still paying too much for a company expecting to produce less than $250 million in adjusted EBITDA in 2022. While I agree that the purchase price—which represents a multiple of over 30 times this amount—appears steep at first glance, there are good reasons why SGFY commanded such a price tag and why it was also reportedly being pursued by other heavy hitters like Amazon.com, Inc. and UnitedHealth Group, Inc. Chief among them are Signify’s network of more than 10,000 clinicians across all 50 states, its nationwide value-based provider network, and its proprietary analytics and technology platforms, which will further enhance CVS’s ability to connect patients to care how and when they need it. Specifically, Signify’s network of clinicians—which includes physicians, nurse practitioners and physician assistants—utilize home-based visits to identify a patient’s clinical and social needs, and then connect them to appropriate follow-up care and community-based resources in order for the patient to have a more connected, effective care experience. And as these visits typically average 2.5 times longer than a similar primary care office visit, most patients surveyed felt that such in-home health risk assessments were more convenient and thorough than traditional doctor visits, with 80% of members who have participated in a health risk assessment saying they would have one again.
With Signify’s clinicians expecting to connect with nearly 2.5 million unique members in the home (both in-person and virtually) in 2022, it’s no surprise that CVS expects this deal to be accretive in its first full year following its projected close in the first half of 2023 and generate attractive returns on invested capital over time as synergies are realized. Coupled with the company’s excellent track record with successfully integrating similar potentially lucrative acquisitions, expect this one to also contribute to meaningful gains in share value ahead.
Source: https://www.forbes.com/sites/taesikyoon/2022/09/09/why-signify-has-the-potential-to-add-significant-value-to-cvss-stock/