Behind the scenes of CVS-Signify

After losing out on One Medical, CVS moved fast to land an $8 billion deal for Signify Health — the first move in what executives indicate is a bigger vision to reinvent how care delivery is orchestrated.

Why it matters: CVS really wanted Signify — and proved it's a good time to be a well-capitalized strategic buyer that can pay all cash, versus private equity buyers that have to arrange debt financing.

Behind the scenes: Sources say CVS preempted the sale process for Signify, with final bids due after Labor Day for the Dallas-based provider of in-home health assessments and value-based care enablement.

• Sources also suggest that a traditional LBO would have likely supported, at most, a deal valued in the mid-to-high $20 per share range — below CVS' $30.50 all-cash offer.
• The $8 billion deal values Signify at some 35x EBITDA, whereas "its hard to see how PE would have gotten much above 20x," one source adds.

What they're saying: CVS and Signify declined to comment on process dynamics, but Signify CEO Kyle Armbrester confirmed it was "very competitive" with both strategics and private equity around the table.

• "This wasn’t about needing money... This is about unlocking another strategic vector of growth for us that’s going to drive better outcomes for patients at scale."
• In a health care market fraught with high costs and mixed quality, "we've got to start thinking radically different from where we've been," Armbrester says. "We wanted to see [Signify] taken to the next level and CVS was the best place to make sure that happened."

💭 Our thought bubble: CVS didn't just have the most cash or drive — they were probably the most reliable buyer.

• The FTC is already investigating Amazon's $4 billion One Medical purchase, while UnitedHealth Group's fight against the DOJ over its Change acquisition remains unresolved as the FTC requests more information around its pending LHC buy.

Zoom in: Signify checks two of three boxes on the CVS health care services agenda: home health and physician enablement.

• It doesn't fit the traditional definition of its third box — primary care — but Signify's in-home evaluations are "an extension of the primary care team," CVS CMO Sree Chaguturu tells Axios.
• Signify is already making hundreds of thousands of referrals out of homes today — one of the major roles of a PCP, Armbrester says: "I already think we do care in the home."

• Signify, by identifying patients' clinical anxd social needs, gives CVS the opportunity to connect members back to primary care providers, specialists, virtual care, or into the CVS network as appropriate — via its MinuteClinic or pharmacy services, Chaguturu says.
• "That fundamentally helps us deliver on value-based care, but also to improve patient access to care and improve quality," Chaguturu says.

💭 Our (second) thought bubble: The old model of primary care is constantly evolving, and Signify — by entering the home, assessing the member, and then deciding what needs to happen next — could be considered a new version of the so-called health care quarterback.

• Armbrester notes: "Those actions being taken are what helps drive outcomes at the end of the day."

What's next: CVS still wants a direct entry into primary care, reiterates Chaguturu, with additional M&A poised to follow. "The order of M&A is not important," he says.

• Signify eventually wants to start managing chronic conditions in the home, particularly for those that lack transportation or live in a food desert, Armbrester says.
• Medication therapy management could be another logical growth vector in the home, another source suggests.