By Senad Karaahmetovic
It was announced yesterday that CVS Health (NYSE:CVS) agreed to pay $30.50 per share in cash to acquire Signify Health (NYSE:SGFY).
The total deal was valued at $8 billion with CVS saying it will fund the deal with existing cash from its balance sheet.
"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.
CVS Health and Signify Health anticipate that the transaction will close in the first half of 2023.
"This is a major step as we continue to execute on our strategy," added CVS Health Executive Vice President and Chief Financial Officer Shawn Guertin.
"We expect the acquisition to be meaningfully accretive to earnings and, as a result, are increasingly confident we can achieve our long-term adjusted EPS goals as outlined at our Investor Day in December 2021."
A JPMorgan analyst downgraded SGFY to Neutral from Overweight following the news.
“Signify is an attractive asset, given its growth profile and access to the homes of an addressable ~80M members enrolled in Medicare Advantage and Medicaid Managed care, however we note that 37% of revenue collectively comes from Humana & Optum (top 10 customers = 78%) which could potentially be at risk once SFGY is operated by a competitor, despite the company stating that it will be operated as a distinct-payor agnostic business,” the analyst wrote in a client note.
A Credit Suisse analyst believes the SGFY deal is “at least one part of the company’s overarching strategy but would still leave open the question of adding a primary care capability.”
Hence, the analyst argues that CVS Health is likely to “pursue more M&A, as management suggested in our Virtual HQ Visit.”
CVS Health shares are up 0.5% in premarket Tuesday.