CVS Health announces $10.6B acquisition of Oak Street Health
CVS Health is officially acquiring Oak Street Health for $10.6 billion, the company announced.
Chicago-based Oak Street Health is a primary care provider for Medicare beneficiaries founded in 2012. The transaction is an all-cash deal, with the acquisition share price set at $39 per share.
The deal was expected to be announced after several stories leaked that the two companies were in talks. The acquisition brings CVS Health further into the provider space and follows another major acquisition from the retail pharmacy giant. CVS Health announced it would acquire Signify Health for $8 billion last year. CVS Health plans to fund the acquisition through available resources and existing financial capacity and will maintain its current credit ratings. The deal is expected to close in 2023.
CVS sees the deal as beneficial to patient’s long-term by reducing costs and improving outcomes for those in underserved communities. Oak Street Health operates 169 medical centers in 21 states, with approximately 600 primary care providers in its employment. More than half of Oak Street Health’s patients have a housing, food or isolation risk factor, and many of its primary care centers are in areas where healthcare services are most needed. CVS Health has more than 10,000 retail pharmacies, meaning its presence in communities also brings services where patients live. CVS Health predicts the deal will create more than $500 million in synergy potential over time.
“Combining Oak Street Health’s platform with CVS Health’s unmatched reach will create the premier value-based primary care solution,” Karen S. Lynch, CVS Health president and CEO, said in a statement. “Enhancing our value-based offerings is core to our strategy as we continue to redefine how people access and experience care that is more affordable, convenient and connected.”
According to CVS, Oak Street Health sets itself apart by its technology solution, Canopy, which is fully integrated into the company’s operations and determines the appropriate type and level of care for each patient. CVS Health plans to enhance the care provided by Oak Street through its own community, home and digital offerings. The deal comes during a growth phase for Oak Street Health, which will have more than 300 centers by 2026, “each of which has the potential to contribute $7 million of Oak Street Health Adjusted EBITDA at maturity, representing more than $2 billion of Oak Street Health embedded Adjusted EBITDA at that time,” CVS said in its press release.
“This agreement with CVS Health will accelerate our ability to deliver on our mission and continue improving health outcomes, lowering medical costs, and providing a better patient experience while offering significant value to our shareholders,” Oak Street Health CEO Mike Pykosz said in a press release.
Oak Street Health will become part of CVS Health’s Health Care Delivery organization and will continue to be led by Pykosz. The Health Care Delivery business, announced in 2022, oversees key areas of the company's health services and care delivery strategy.
The deal was already approved by both CVS Health’s and Oak Street Health’s respective board of directors, but the transaction is still subject to approval by a majority of Oak Street Health’s stockholders, as well as regulatory approval and other customary closing conditions. Newlight Partners and General Atlantic private equity affiliate funds, which own approximately 45% of Oak Street Health’s common stock collectively, have already agreed to vote in favor of the deal.
“Oak Street Health is a premier value-based primary care platform,” CVS Health CFO Shawn M. Guertin said in a statement. “We believe that in partnership with CVS Health, Oak Street Health can accelerate its growth and provide an attractive return to our shareholders over time. The pending acquisitions of Oak Street Health and Signify Health will also meaningfully advance our goal of adding 200 basis points of long-term adjusted operating income growth, a key commitment we made to shareholders at our December 2021 Investor Day.”
Amy joined TriMed Media as a Senior Writer for HealthExec after covering home care for three years. When not writing about all things healthcare, she fulfills her lifelong dream of becoming a pirate by sailing in regattas and enjoying rum. Fun fact: she sailed 333 miles across Lake Michigan in the Chicago Yacht Club "Race to Mackinac."