Americans with minor ailments are not the only ones seeking treatment from walk-in urgent care centres. Walgreens Boots Alliance is hoping the sector — a fast-growing segment of US healthcare — can provide a much needed salve for its own aches and pains. VillageMD, a unit of the US drugstore operator, is buying Summit Health-CityMD, in a deal worth $8.9bn, including debt.
It is not a straightforward transaction. Walgreens had hoped to use proceeds from the sale of its struggling Boots chain in the UK to fund its push into healthcare services. Having shelved disposal plans earlier this summer, it now needs to get creative.
Under the terms of deal, parent Walgreens will put $3.5bn into the takeover in a mix of debt and equity. Cigna’s healthcare unit Evernorth is also investing. It will become a minority owner of VillageMD. Walgreens will remain the majority shareholder with a 53 per cent stake.
VillageMD is paying the equivalent of 19 times Summit’s estimated adjusted ebitda for the current year, the companies said. That is hardly a bargain considering Walgreens itself is trading on just eight times.
But it does not have much of a choice. Owning physical drugstores is not the cash cow it once was. Rival CVS has built up a much more diversified business. This includes a large pharmacy benefit management business and a leading health insurance division. Walgreens remains overly dependent on its nearly 9,000 stores in the US.
Competition for healthcare assets has also become fierce. Amazon and CVS have struck multibillion-dollar deals in the sector in recent months.
Summit Health has more than 370 primary, speciality and urgent care clinics in the US. Growth has been driven by demand from millions of newly-insured Americans and others frustrated by long waits at emergency rooms.
Walgreens said the deal will be accretive to the company’s adjusted earnings starting next year. It raised its healthcare revenue goals for fiscal 2025 by a third. Sometimes a bitter pill is best swallowed with a smile.
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