Deals among PE-backed physician practice management players and strategic buyers (drug distributors in this case) are heating up.
On November 6, Cencora bought Retina Consultants of America (RCA) for $4.6B (an 85% stake and $500M in incentive payments).
RCA serves 300+ retina specialists in 23 states and sees 2 million patient visits annually.
Interestingly RCA specializes in clinical trials in research, which Cencora is sure to have an invested (literally) interest in.
Through eventually owning both OneOncology and RCA, Cencora will look to build out a more integrated management services organization (an MSO, as our industry so fondly loves its acronym) to house its services subsidiary.
Also this week, today Cardinal Health did its best to one-up its competitor by announcing it's acquiring GI Alliance, valuing GI Alliance at $3.9B (a 71% stake).
From the presser, GI Alliance (GIA) affiliates with 900+ physicians, and notably, its doctors hold a sizable amount of its equity so…potentially a big payday for its owner physicians as its PE sponsor owned around 15% of GIA. GIA has been highly acquisitive as most PE-backed players are, with a focus on the east coast and northeast regions.
Other than that, GIA is large with 345 locations in 20 states, 135 ASCs, 165 hospital networks, and 95 infusion centers.
- GIA supports a complete continuum of gastroenterology care furnished by its member practices, with significant depth in anesthesiology, pathology, infusion, radiology and clinical research.
Cardinal Health also recently bought Integrated Oncology Network for $1.1B and is playing catch up with other distributors looking to acquire community oncology and related physician practice management assets to capture downstream specialty drug spend.
Bigger Picture: Why the massive acquisitions in ophthalmology and GI? At a high level, these specialties act as a wedge into accessing downstream specialty drug spend - and preserving / growing that specialty drug distribution margin for the McKesson's, Cencora's, and Cardinal Health's of the world.
It's vertical integration at its finest, as specialty drug spend will continue to grow and preserving this margin is top of mind. Owning the care delivery component unlocks and preserves this opportunity to double dip into both practice MSO earnings and specialty drug spend, and McKesson is well in front of other distributors (for now) with its US Oncology Network.
These moves are also a big win for private equity, as this deal now marks two exited investments sold to strategic players in the healthcare services world. The timing RIGHT after the election is pretty telling. While these discussions likely took place a while before the election, like I mentioned in my election summary, you should expect to see a continued thawing out of the M&A markets in a more business friendly political environment, and more sales to strategic players given they're more likely to justify the frothier valuations on assets amalgamated (sorry, I saw the opportunity to use this word and I took it) during low interest rate environments.
If you want to understand the full picture of vertical integration in both oncology, the players involved, and why these distributors want to buy into these scaled physician practice management companies, I wrote a deep dive for my community here.
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