By Senad Karaahmetovic
CVS Health (NYSE:CVS) is planning to bid for Signify Health (NYSE:SGFY), according to a report in the Dow Jones. If completed, the deal would allow the healthcare giant to become an even bigger provider of medical services
This news comes after the WSJ reported earlier that Signify Health is having an internal discussion about a potential sale with the company expecting initial bids this week.
There’s no guarantee any of the incoming bids will satisfy CVS Health, according to DJ. CVS indicated earlier that it will look to deploy capital to become an even bigger provider, with a potential acquisition in the in-home health sector being discussed by the management earlier.
A Bank of America analyst has reflected positively on the potential deal.
“SGFY used an over-arching tech platform that both allows for optimal efficiency for its clinicians but also to ensure the most appropriate types of evaluations in the home. While CVS does not participate in this market directly, building any additional services into the home in our view would be a positive step, even if it feels like there is more urgency on the primary care side,” the analyst said in a client note.
Net-net, the analyst believes SGFY is “an appealing business on a whole.”
A Cowen analyst is skeptical about the potential deal taking place.
“While we are encouraged to see CVS actively evaluating assets in line with its strategic priorities, we are cautious on a potential bid for SGFY. In particular, we note significant customer concentration with its three largest customers HUM, AET and UNH at 26%, 24%, and 11% of SGFY revenue, respectively. It seems unlikely to us that over the long run CVS's competitors would want it to have access to so much information, particularly in MA, potentially putting a third of SGFY revenue at risk,” the analyst said in a note.
Moreover, the analyst is also pessimistic about SGFY’s valuation.
“SGFY's current valuation alone would suggest SGFY may not be something that CVS would bid on, given recent mgmt commentary that "the valuation environment [for M&A] continues to present its own set of challenges,” suggesting that CVS is sensitive to valuation,” he concluded.