Merger activity decreased last week with two new deals announced and six deals completed including three that at various points sported large spreads and appeared to be in trouble. One of the deals announced last week was a potential deal in the works.
Having worked in healthcare services in a San Francisco based company, I was acutely aware of One Medical, a company that was attempting to reinvent the way primary care was delivered to patients. 1Life Healthcare also known as One Medical was founded by Tom Lee in 2007. Google was an early investor in the company and by the time the company went public in January 2020, The Carlyle Group with a 27% stake, was its largest investor.
The company’s stock took a pretty big hit after it announced a large $2.1 billion all stock acquisition of Iora Health, a company focused on providing senior care and then once again this year when non-profitable growth stocks fell out of favor. The stock declined nearly 90% peak-to-trough from a high of almost $60 per share in February 2020 to just above $6 by May 2022. The deal by Amazon is not significantly higher than the company’s $14 IPO price. I looked at 1Life Healthcare multiple times and it was also on the “broken growth watch list” we discussed in our January 2020 mid-month update. Unfortunately the fact that the company was cash flow negative and conversations I had with executives who have extensive healthcare services experience, kept me away from the stock.
We added 1Life Healthcare as a potential deal in the works on July 5, 2022, when Bloomberg reported that the company was considering options after attracting takeover interest. CVS Health Corporation (CVS) had initially shown interest but later backed out. 1Life’s price after this announcement was $10.34. The potential deal was announced almost a year after the company acquired Iora Health.
On July 21, 2022, Amazon and One Medical entered into a definitive merger agreement, under which Amazon will acquire One Medical for $18, in a transaction valued at $3.9 billion, representing a premium of over 76%. This is Amazon’s third largest acquisition after its purchases of organic grocer Whole Foods Market and film studio MGM. The deal currently sports a spread of 4.96% or over 11% annualized if the deal closes by the end of the year.