Regulatory filing details Amazon, CVS bidding war for One Medical as primary care in M&A crosshairs

Tech-enabled primary care players are now prime targets for M&A deals as retailers like CVS, Walgreens and Walmart look to expand their reach into healthcare.

If Amazon's recent multibillion-dollar deal to scoop up One Medical is any indication of the state of the market, the industry can expect fierce competition to buy up other healthcare companies.

One Medical markets itself as a membership-based, tech-integrated, consumer-focused primary care platform that offers in-person care and virtual care. The company operates 188 offices in 29 markets. At the end of March, One Medical had 767,000 members.

In July, Amazon made an offer for $18 per share in an all-cash transaction valued at approximately $3.9 billion including the company's net debt.

But it wasn't One Medical's only offer. Another company was in talks to acquire One Medical with discussions going back to October 2021, according to a regulatory disclosure with the U.S. Securities and Exchange Commission (SEC) filed Aug. 10.

In mid-October, a financial adviser for a strategic party identified in the filing as "Party A" called Amir Dan Rubin, the CEO and president of 1Life Healthcare, the parent company of One Medical, began to discuss exploring a potential partnership or other strategic transaction. Bloomberg has reported that "Party A " was CVS, citing people familiar with the matter.

In the fall of 2021, 1Life Healthcare senior management and the board of directors were evaluating the company's long-term strategic goals and plans with a focus on ongoing operations and expansion plans, related cash flow projections, the impact of changes in capital markets and the availability and attractiveness for any potential future third party funding, according to the filing.

Earlier this year, company executives discussed the need to raise more capital with a target of raising an additional $300 million by the end of 2022. But executives also acknowledged the current market conditions and the hefty challenges of securing funding on a potential capital raise of that size, the SEC document says.

One Medical had less than $200 million of cash on hand as of June 30, according to its second-quarter earnings report, down considerably from $342 million of cash on hand a year ago.

By the end of March 2022, the company had $428 million in cash and marketable securities, a decrease of $73 million from the end of 2021. One Medical invested $19 million in capital expenditures over the course of the first quarter as it continued to invest in its geographic expansion and technology, Chief Financial Officer Bjorn Thaler said during the first-quarter earnings call.

One Medical had been in talks with Amazon to ink some kind of strategic deal since February, according to the SEC filing.

"Party A" made an offer to buy One Medical for $17 per share June 1 and then increased the bid to $18 a share June 2, the regulatory filing shows. One Medical then told Amazon that it had another potential suitor.

Later that month, Amazon made its first offer at $16 per share then upped the bid to $18 per share July 2. But Amazon also said it would pull out of the deal "in the event of a leak," according to the filing.

Three days later, Bloomberg reported that CVS and One Medical had been in takeover talks, and CVS then bowed out of the discussions, the filing said.

With no other offers on the table, One Medical and Amazon finally agreed to $18 per share in an all-cash transaction valued at approximately $3.9 billion including the company's net debt.

Many healthcare experts see the Amazon-One Medical deal as part of a larger trend of tech companies pushing further into healthcare.

"I've long thought that to address macroscopic healthcare issues and really address the fundamental problems with our healthcare system it takes an entity that's big enough, has enough cloud resources and patience to take on incumbents," said Benjamin Schwartz, M.D., an orthopedic surgeon and health tech adviser, during a recent MDisrupt webinar. 

"It's not an easy thing to do," he said. "And there aren't a lot of companies that fit that description. Amazon is one of them. For better or for worse, I think that's really what's interesting about this is that you have a company that has the ability to affect things at a macroscopic, fundamental level, where others don't."

On the hunt for primary care companies 

CVS has said it plans to make a big move in primary care by investing or acquiring a provider by the end of this year. According to recent media reports, CVS is eyeing a potential deal to buy Signify Health. Signify uses analytics and technology to help health plans, employers, physician groups and health systems with in-home care. 

Other retailers are looking to expand their healthcare operations either with in-person clinics or through virtual care. CVS rival Walgreens is doubling down on primary care and home health. The company invested $5.2 billion in primary care company VillageMD last year, boosting its stake in the company as it looks to open hundreds of new clinics across the U.S. 

Walmart also has ambitions in healthcare. The retailer operates about 20 in-person clinic locations across Georgia, Arkansas, Illinois and now Florida, with locations attached to its supercenter stores. These health centers offer a slew of services at a flat fee, including primary care and dental care as well as labs and imaging.

There are a number of public primary care providers that could be takeover candidates including Oak Street Health, Cano and Agilon Health.

Insider reported that ChenMed, a privately owned primary-care company, is mulling a potential spinoff of a big piece of its business. The company has a majority stake in JenCare, a joint venture with Humana that operates in five states and serves 50,000 patients.

Amid ongoing speculation about potential M&A deals, shares of digital healthcare company Babylon jumped Monday as investors responded to rumors that the company is reportedly considering a transaction that would take them private. The M&A speculation led to a more than 20% increase in the company’s stock price at one point during the trading day and led to the New York Stock Exchange’s trading halt of Babylon's ordinary shares.

But the company issued a report Monday afternoon denying the reports, saying it is "not engaged in nor has it had contact or discussions with any potential acquirer."

The company is wrestling with sinking share prices after going public one year ago. The company's stock is down 87% in 2022.

"Babylon delivered very strong financial results and operational performance that demonstrate its continued momentum. Babylon is taking active steps to maximize shareholder value and to improve its shareholder base and capital structure," the company said in a statement issued Monday.

“Healthcare innovation is wide-open for disruption right now, with many companies announcing ambitious plans to navigate the changing landscape,” said Anthony Capone, president of DocGo, a mobile medical service provider. “CVS’ recent announcement to move into home health and the possible acquisition of Signify Health further demonstrates how companies at the nexus of technology and healthcare delivery are winning in today’s market. This momentum, coupled with Amazon’s recent acquisition of One Medical and Walgreens’ alliance with VillageMD, is transforming the healthcare economy and helping to revolutionize the way care is delivered.”

Moves by Amazon and potentially CVS into primary care means healthcare providers who traditionally were looking to sell to private equity and venture capitalist buyers now have a broad network of potential buyers for their practices, said Samantha Prokop, an attorney at Gunster law firm who specializes in advising healthcare companies that are executing M&A deals.

"Providers will have new competitors with strong financial backing and established access to huge patient populations as well as state-of-the art technology platforms," Prokop said.