(Bloomberg) -- VillageMD, which is majority owned by Walgreens Boots Alliance Inc., is exploring a deal to merge with Warburg Pincus-backed Summit Health, according to people familiar with the matter.
The acquisition by primary-care provider VillageMD of Summit, a health-care network and the parent of CityMD, would value the combined entity at between $5 billion to $10 billion, said the people, who asked to not be identified because the matter isn’t public.
An agreement could be reached in the coming weeks, though talks could still fall apart, the people added. Representatives for VillageMD, Walgreens and Warburg Pincus declined to comment, while Summit Health didn’t immediately respond to a request for comment.
The talks come as pharmacy and retail chains like Walgreens, Walmart Inc. and CVS Health Corp. are increasingly positioning themselves as entry points to the health-care system. Combining practices like VillageMD and Summit could increase Walgreens’ reach and create a platform for further acquisitions.
Walgreens rivals including CVS and Amazon.com Inc. have been pushing deeper into primary health care through major acquisitions. Walgreens last year agreed to more than double its stake in VillageMD to 63% from 30% by investing $5.2 billion in the company.
Under Chief Executive Officer Roz Brewer, Walgreens has been adding primary-care centers to its US retail locations, partnering with health insurers and buying out its remaining stakes in CareCentrix and Shields Health Solutions. In October, it appointed John Driscoll, CareCentrix’s CEO, as president of Walgreens’s US health-care unit. The company has also launched an initiative to enroll patients in clinical trials.
Health-care companies have been combining insurance, care delivery and pharmacy assets into vertically integrated entities. Insurers, hospital systems and financial investors are competing to own medical practices and primary care physician groups in particular.
Physician Practices
The growth of private Medicare Advantage plans that cover a rising number of US seniors has made physician practices attractive assets. The plans often share a portion of insurance premiums directly with physicians, who in turn take on some of the financial risk of patients’ total costs. Large medical groups are well-positioned to profit from such arrangements.
Walgreens first invested in closely held VillageMD in 2020 with a goal of building as many as 700 primary care clinics inside its pharmacies. It said last year it would increase the number to 1,000 by 2027.
The company also considered selling its Boots drugstore chain earlier this year to better focus on North America, but pulled the sale after failing to fetch a good price.
Summit Health, formed in 2019 by the merger of Summit Medical Group and CityMD, has more than 370 locations in New Jersey, New York, Connecticut, Pennsylvania and Oregon, according to its website.
Warburg Pincus, a New York-based private equity firm, acquired CityMD in 2017 and took a majority stake in Summit after the 2019 merger, according to a statement at the time.
--With assistance from John Tozzi.
(Updates with additional context starting in fourth paragraph.)
©2022 Bloomberg L.P.
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