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Walgreens affiliate in $9bn deal for doctors’ group Summit Health

VillageMD, an affiliate of Walgreens Boots Alliance, has agreed to acquire physicians’ group and urgent care provider Summit Health in a deal valued at almost $9bn, adding to a wave of consolidation in the US healthcare sector.

The transaction, which includes debt, will combine VillageMD with the operator of CityMD, whose urgent care centres are located throughout the north-east US. The entity will have more than 680 provider locations, the two companies said.

Walgreens has agreed to invest $3.5bn as part of the transaction through a mix of debt and equity, and will remain VillageMD’s largest shareholder with a 53 per cent stake in the business. Evernorth, a subsidiary of health insurance company Cigna, has invested an undisclosed amount and will be a minority owner in VillageMD.

News of the deal comes months after Walgreens was forced to abandon its planned sale of the Boots pharmacy chain in the UK after struggling to draw interest from buyers, a move it blamed on market conditions.

Warburg Pincus, a New York-based private equity group, acquired CityMD in 2017 at a $600mn valuation, which included debt and the rollover of physician equity interests. Warburg later merged CityMD with Summit Health, a network of medical practices with more than 370 locations in New Jersey, New York, Connecticut, Pennsylvania and Oregon, according to its website.

The deal will rank the Berkeley Heights, New Jersey-based business among Warburg’s most successful investments, according to people familiar with the matter. Warburg is set to make a multibillion-dollar profit from the $500mn in equity it invested, according to calculations from the Financial Times.

About 1,000 physicians and doctors who own nearly half of Summit Health’s equity will also see a large financial return, according to people familiar with the matter.

Medical employees and management in CityMD, Summit and nearly 40 other practices that Warburg acquired during its investment held on to their equity interests through the mergers, which will give them a significant stake in the VillageMD-Summit combination.

Healthcare providers have drawn great interest since the coronavirus pandemic. In August, Amazon agreed to pay $3.9bn for OneMedical, which offers patients a subscription-based model where they can pay a monthly fee to have access to doctors. That deal was followed by CVS Health’s acquisition of Signify Health for about $8bn.

Other private equity groups have also become big investors in healthcare companies. Blackstone acquired hospital staffing supplier Team Health in 2016 and two years later, KKR bought physician services and emergency room operator Envision Healthcare for $9.9bn.

Warburg Pincus is one of the most active private equity investors in the healthcare sector, having invested more than $14bn in such companies, including on demand healthcare provider Alignment Healthcare and veterinarian practice Bond Vet.

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