CAMP HILL, Pa. — Rite Aid Corp. has taken another decisive step in its drive to expand its footprint in health care, agreeing to acquire Envision Pharmaceutical Services (EnvisionRx), a full-service pharmacy benefits management company, in a cash-and-stock deal valued at about $2 billion.
Rite Aid said Wednesday that it expects the acquisition of EnvisionRx, now part of private equity firm TPG, to close by September.
With about 13 million covered individuals, EnvisionRx provides both transparent and traditional PBM options through its EnvisionRx and MedTrak PBMs, respectively, as well as pharmacy-related services to clients across the United States.
The company also offers fully integrated mail-order and specialty pharmacy services through Orchard Pharmaceutical Services; access to the nation’s largest cash-pay infertility discount drug program via Design Rx; a claims adjudication software platform in Laker Software; and a national Medicare Part D prescription drug plan through Envision Insurance Co.’s EnvisionRx Plus product offering.
EnvisionRx has projected 2015 calendar-year revenue of $5 billion and EBITDA (earnings before interest, taxes, depreciation and amortization) of $150 million to $160 million.
“The acquisition of EnvisionRx meaningfully expands our health and wellness offerings, enhancing our ability to provide a higher level of care to the patients and communities we serve,” Rite Aid chairman and chief executive officer John Standley said in a statement. “With the addition of EnvisionRx, we will create a compelling pharmacy offering across retail, specialty and mail-order channels, enabling us to deliver cost-effective solutions to employers and health plans while driving growth and creating long-term value for our shareholders.”
Plans call for EnvisionRx to operate as a wholly owned subsidiary of Rite Aid and remain in its Twinsburg, Ohio, headquarters. EnvisionRx will continue to be led by its current management.
“Combining our comprehensive suite of pharmacy benefits management services with Rite Aid’s established retail health care platform is a natural fit that is increasingly preferred by plan sponsors,” stated EnvisionRx CEO Frank Sheehy. “Together, we see tremendous opportunities to provide new and existing customers with an integrated health care offering that will build upon the company’s strong existing platform.”
Under the terms of the agreement, which has been unanimously approved by the boards of both companies, Rite Aid will pay $1.8 billion in cash and $200 million in stock, or about 27.9 million shares.
Rite Aid said that it has obtained committed financing for the transaction from Citigroup Global Markets, BofA Merrill Lynch, Wells Fargo Securities and Credit Suisse. Subject to market conditions, Rite Aid expects to finance the $1.8 billion cash portion of the deal through proceeds from the issuance of unsecured notes before the closing of the acquisition. The transaction is expected to be accretive to Rite Aid’s earnings per share in the first full year after the transaction is finalized.
The purchase of EnvisionRx marks Rite Aid’s third major health care acquisition within the past year, part of the drug chain’s strategy to transform itself into a retail health care company.
“We are very enthusiastic about this deal for Rite Aid,” Deutsche Bank Securities analyst George Hill wrote in a research note Wednesday. “The company will be able to follow the playbook developed by CVS and generate operating leverage with its retail, burgeoning health clinic and now PBM assets. CVS has demonstrated that there are myriad synergies
in combining these three assets. Rite Aid will have better visibility into channel pricing through its PBM asset and can use the PBM to drive volume into its stores and clinics. Given Rite Aid’s regional footprint, it will be interesting to see how the company uses this to drive growth on the PBM side.”
Last April, Rite Aid acquired Health Dialog Services Corp., a Boston-based provider of health coaching, shared decision-making and health care analytics, and about a week later announced the acquisition of RediClinic, a Houston-based operator of retail health clinics.
Health Dialog is a key component of the Rite Aid Health Alliance. Under the program, launched last March, physicians from affiliated health care groups work with Rite Aid pharmacists and Health Dialog care coaches to provide comprehensive care and support to people with chronic and polychronic health conditions.
The Rite Aid Health Alliance now has more than a half-dozen health care partners. And last week, Rite Aid inaugurated the first RediClinics in its drug stores with the opening of 24 clinics in the Philadelphia and Baltimore/Washington, D.C., markets.
*Editor’s Note: Article updated with analyst comment.